The Economic History of India

The Economic History of India

1857-1947

THIRD EDITION

TIRTHANKAR ROY

1
 1
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Oxford University Press 2000

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Second Edition published in 2006
Third Edition published in 2011

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 To
my teacher and mentor
Ashok Rudra (193092)
Contents

Preface
List of Tables, Figures, Boxes, and Maps
List of Abbreviations
Exchange Rate, 18001947

1. INTRODUCTION 1
South Asia, 18571947: Colonialism and Globalization 1
Theories of Economic History 5
Competing Narratives on India 13
Beyond Competing Narratives 16
2. TRANSITION TO COLONIALISM: 17071857 20
The Passage of Empires 21
Economic Conditions c. 1750 23
New Property Rights in Land 37
Foreign Trade 46
Domestic Trade 52
Business History: Merchants and Bankers 53
Business History: Industry 59
The State and Public Goods 61
Conclusion 75
3. GROWTH AND STRUCTURAL CHANGE: 18571947 79
Measuring Change 80
Explaining Change 89
Globalization and Patterns of Trade 90
Savings and Investment 91
viii contents

Public Finance 94
Balance of Payments 95
Prices 98
The Great Depression 101
Conclusion 102
4. AGRICULTURE 104
Trends in Production and Income 104
Resources and Techniques 107
Markets 112
Agriculture in Major Regions 119
Land, Labour, and Credit Markets 128
Effects of Market Expansion 136
Explaining Stagnation 141
Conclusion 143
5. THE COMMONS 149
Types of Common Land 149
Forests and Forest-dependent People 150
Village Commons and Pastures 153
Land-use Patterns 155
Conclusion 156
6. SMALL-SCALE INDUSTRY 158
Types of Industry Defined 158
Long-term Pattern of Industrialization 160
Two Models of Transition in Handicrafts 162
Handloom Weaving 165
Other Industries 171
Labour and Capital 176
Modern Small-scale Industry 178
Conclusion 180
7. LARGE-SCALE INDUSTRY 183
Statistical Outline 184
Stages of Industrialization 186
Major Industries 189
Labour 192
Finance for Industry 199
Entrepreneurship 200
Business Organization 203
Technology and Colonialism 209
Princely States 210
Conclusion 212
 contents ix

8. PLANTATIONS, MINES, BANKING 215

Tea and Coffee Plantations 216
Mines 221
Banking 225
Insurance 231
Conclusion 231
9. INFRASTRUCTURE 234
The Impetus 234
Irrigation 235
Railways 238
Roads and Inland Waterways 241
Ports 242
Posts and Telegraph 243
Power 244
The Legal System 245
Education 246
Healthcare 250
Conclusion 250
10. FISCAL AND MONETARY SYSTEMS 252
Policymaking 253
Trade Policy 253
The Fiscal System 254
The Monetary System 261
Conclusion 265
11. POPULATION AND LABOUR 267
Population 267
Famines 277
Labour Force 282
Conclusion 285
12. ECONOMIC CHANGE IN INDIA 19502010 287
Three Phases 289
Birth of a Regime: 195064 292
Crises, Contradiction, and Critique: 196585 299
Transition: 19862010 305

Further Readings 320

Glossary 331
Index 339
Preface to the Third Edition
T o be of value a text book must be state-
of-the-art. Economic history is changing
rapidly, thanks to the partnership that it has
formed with comparative economic growth.
Much applied work today addresses itself
to explaining the origins of international
economic inequality in the modern world,
or to borrow words from David Landes,
answering the question; Why are we so rich
and they so poor? Questions like these invite
researchers working on the non-Western world
to show how their regions of expertise can
contribute to discussions on world inequality.
The current revision of the textbook is partly
motivated by the desire to integrate Indian
history into this global history project.
But there is also a cautionary intent. There
is a danger in reading Indian history through
the lenses of global history. Application of
any general model claiming to explain the
origins of international inequality could turn
the study of the non-Western world into an
enquiry into its presumed economic failures,
merely a story telling us why they are so
poor, or why nations fail, to cite the title of
a well-known article on India. The rhetoric
of success and failure defeats the purpose
of economic history. Whole nations do not
become rich or poor; individuals, groups,
livelihoods, and regions do. Dealing with
averages and representative agents could
lead to a flattening of the huge variations
across individuals, groups, livelihoods, and
regions that lie behind the averages and
agents. Using a large country like India to
illustrate the failure of the non-West requires
suppressing the diversity that characterizes
Indian economy and society. Such a point of
entry does not help us understand a region
that has experienced robust industrialization,
flourishing entrepreneurial culture, high
scientific and technological attainments, and
a stable democratic state for more than half
a century. Amidst such achievements, the
region remains home to the worlds largest
pool of poor and illiterate people, and has seen
violent social conflicts, huge gender inequality,
environmental stress, land and water shortages,
and inefficient institutions. If history is to be
useful, it should show how such paradoxes
emerged, and why they persist into the present.
In this revision, the dual project
connecting with global history, and connecting
with the presentis taken further than
xii preface to the third edition
before. The former aim is served in several
ways. Chapter 1 is revised to reflect new
developments in global history. More space is
devoted to institutional transitions, touching
on education, law, business organization, land
rights, and contracts, among other themes.
Throughout the text, the boxes introduce
specialist literatures in global and comparative
history with relevance for India. More
attention falls upon subjects like international
trade, migration, investment, and transactions
in scientific and technological knowledge. And
since global historians show particular interest
in the eighteenth century, from when world
inequality began to widen rapidly, the political
and economic transition in eighteenth century
India is discussed more fully than before
(Chapter 2). The second aim is served by the
newly added Chapter 12, which carries out an
overview of postcolonial developments in the
Indian Union from a historians perspective.
The rest of the book retains the same structure
as in the second edition, with tighter editing,
optimal use of space, and updated discussion
of the literature.
The additional material that it was
necessary to cite required a change in citation
style. Keeping the students interest in mind,
the longer chapters now contain a section on
Further Readings at the end. Endnotes only
cite works that have a direct bearing on the
relevant text. These two sets are not exclusive,
and may need to be combined for a reasonably
comprehensive listing of available research on
any theme. A glossary of Indian and British
Indian terms has been added in this edition.
In preparing this revised edition, I have
received valuable suggestions from Ravi
Raman and Supratim Das. Rosanne Das
Gupta deserves a special word of gratitude
for carefully editing an earlier draft. Anjan
Gupta has supplied both intellectual input and
logistical help.
Tirthankar Roy
London
Tables, Figures, Boxes, and Maps

TABLES

1.1 Major Provinces in 1881, with Approximate Dates of Annexation 4

2.1 Scale of Foreign Trade, 18131913 47
2.2 Major Items of Expenditure of the Government of India, 180857 63
3.1 Growth Rates of Real National Income 80
3.2 Regimes of Growth and Stagnation 81
3.3 Further Comparisons between Regimes of Growth and Stagnation 82
3.4 Agricultural Growth, 18651940 84
3.5 Terms of Trade 84
3.6 Food Availability 84
3.7 Growth of Non-agricultural Sectors 85
3.8 Sector-shares in National Income 85
3.9 Sector-shares in Workforce 87
3.10 Components of National Income, 190046 87
3.11 Real Wages 88
3.12 Intensity of Poverty among Agricultural Labourers, 18751961 88
3.13 Composition of Trade, 18501935 91
3.14 Direction of Foreign Trade, 18501940 91
3.15 Estimates of Investment, 190146 92
3.16 Estimates of Saving, 190146 93
3.17 Receipts and Payments on the Government Account, 190146 95
3.18 Balance of Payments, 192139 99
3.19 Structure of Balance of Payments, Early and Late Colonialism 99
3.20 Composition of Factor Payments, 18601939 99
xiv tables, figures, boxes, and maps

4.1 Growth Rates of Net Domestic Product (NDP), Total and in Agriculture,
18689 to 19467 105
4.2 Trend Growth Rates of Crop Output, Acreage and Yield, 18911946 106
4.3 Growth Rates of Output of Major Crops in British India, 18911946 106
4.4 Per Capita Output and Growth Rates of Output in Major Provinces, 18911946 107
4.5 Relationship between Agricultural Output and Population Growth Rates, 18911946 107
4.6 Area Irrigated, 18851938 111
4.7 Irrigated Area as a Proportion of Cultivated Area in Major Provinces, 18851938 111
4.8 Acreage Cropped, British India, 18911946 115
4.9 Growth of Cultivation, Roads, and Railways in Punjab 121
4.10 Wage Labourers in Agricultural Workforce, 190131 131
4.11 Interest Rate 135
4.12 Agricultural Wages, 17851968 137
5.1 Land-use, 18851938 156
6.1 Different Types of Manufacturing Industry 159
6.2 Employment in Industry, 191131 160
6.3 GDP in Industry, 190046 161
6.4 Estimates of Physical Productivity in Handloom Weaving, 190139 161
6.5 Employment in Households and Wage-workshops within Small-scale Industry,
196191 162
6.6 Women Workers in Industrial Employment, 191191 162
6.7 Industrial Location, 1931 163
6.8 Industrial Composition, 1931 163
6.9 Scale of the Indian Textile Industry, 1920, 1940 167
6.10 Regional Clusters of Factories other than Large Mills, c. 1939 179
7.1 Employment in Factories, 18911938 184
7.2 Industrial Composition, 1921 185
7.3 Location of Large-scale Industry, 191131 185
7.4 Pattern of Industrialization in British India and the Princely States, 1931 185
7.5 Average Real Wage in Large-scale Industry, 190044 198
7.6 Interest Rate in Industry, Trade, and on Government Paper 199
8.1 Production of Major Minerals, 18911938 223
8.2 Growth of Deposits 227
9.1 Selected Railway Statistics, 18601940 240
9.2 Average Transportation Charges 241
9.3 Selected Statistics of Posts and Telegraph, 18581938 244
10.1 Sources of Gross Revenue by Presidency, 18556 256
10.2 Composition of Government Revenue and Expenditure, 1858, 1900, and the 1920s 256
10.3 Gross Public Investment as a Proportion of Public Expenditure, 18981938 257
10.4 Sector Composition of Public Investment, 18601946 258
10.5 Regional Distribution of Public Investment in Irrigation, Roads, and Power,
18601946 258
10.6 Public Debt and DebtGDP Ratio 259
 tables, figures, boxes, and maps xv

10.7 Shares of the Centre and the Provinces in Gross Public Investment, 192037 260
11.1 Population Estimates, 180171 269
11.2 Population of Colonial India and the Indian Union, 18812001 270
11.3 Crude Death and Birth Rates, 18811951 271
11.4 Major Channels of Internal Migration, 190131 277
11.5 Labour Force and Occupational Structure, the Indian Union, 18811951 283
12.1 Average Annual Growth Rates of GDP by Sector of Origin, 18652007 295
12.2 Investment Ratio and Size of Government, 19002007 296
12.3 Size of the External Sector 296

FIGURES

1.1 The Ruling Princes of India 5

2.1 Murshidabad, with Nawabs House, c. 181415 25
3.1 Real Income, 18681946 81
4.1 A View of a Cotton Warehouse, Bombay, c. 1855 120
4.2 Construction of the Head-works of the BariDoab Canal, c. 1870 122
6.1 A. Two Faces of Handicrafts in Early Twentieth Century India 165
6.1 B. Two Faces of Handicrafts in Early Twentieth Century India 166
6.2 An Oil Mill in Tamil Nadu 181
8.1 Tea Chests being Loaded onto Boats in Assam, 1902 217
9.1 Grain Boats being Unloaded in Alipore, Calcutta, c. 185070 243
10.1 The Government of India in Session, c. 1875 254
11.1 Plague Segregation Camp, Bombay, c. 1900 274
11.2 Imported Indian Coolies in Jamaica 279
11.3 Famine Victims, c. 1877 280

BOXES

1.1 Colonialism: The Origins 11

1.2 Indian Society and the Economic History of India 14
2.1 The Great Divergence and India 24
2.2 The Portuguese Arrival 34
2.3 MilitaryFiscal Objectives and State Formation in Eighteenth Century India 38
2.4 Classical Economics and Indian Land Administration 43
2.5 The Banjaras 54
3.1 Early Estimates of National Income 83
3.2 Measurement of National Income in Colonial India 86
3.3 A National Accounting System for Colonial India 100
5.1 Law, Sovereignty, and the Land Rights of Indigenous Peoples 154
7.1 Foreign Firms in Colonial India 202
9.1 Science and Empire 249
10.1 The Gold Standard 263
xvi tables, figures, boxes, and maps

12.1 The Pakistan Puzzle, 19502000 289

12.2 The Quiet Transition in Bangladesh 291

MAPS

1.1 India, 1939 3

2.1 Types of Settlements, 1858 44
4.1 Areas of Rice Cultivation 116
4.2 Areas of Wheat Cultivation 117
4.3 Cotton, Groundnut, Jute, Tobacco, and Tea 118
4.4 Rainfall 144
6.1 Small-scale Industry Clusters 172
11.1 Major Channels of Internal Migration 278
Abbreviations

CEHI 1 I. Habib and T. Raychaudhury (eds), The Cambridge Economic History of India,
Volume 1, Cambridge: Cambridge University Press, 1983.
CEHI 2 Dharma Kumar (ed), The Cambridge Economic History of India, Volume 2,
Cambridge: Cambridge University Press, 1983.
EHR Economic History Review
IESHR Indian Economic and Social History Review
JAS Journal of Asian Studies
JEH Journal of Economic History
MAS Modern Asian Studies
UP United Provinces (before 1947) and Uttar Pradesh (after 1947)
Exchange Rate, 18001947
(pence per rupee and rupees per pound)

180070 24 d. and Rs 10
18715 22 d. and Rs 11
187680 20 d. (average) and Rs 12
18819 18 d. (average) and Rs 13.3
18908 14 d. (average) and Rs 17.2
18991917 16 d. and Rs 14.9
1918 18 d. and Rs 13.3
1919 23 d. and Rs 10.4
1920 JanuarySeptember: 26 d. and Rs 9.2; OctoberDecember: 19 d. and Rs 12.6
1921 16.2 d. (average) and Rs 14.8
19226 16 d. and Rs 14.9
192747 18 d. and Rs 13.3
1
Introduction
SOUTH ASIA, 18571947: COLONIALISM
AND GLOBALIZATION1
South Asia, 18571947
F rom the end of the eighteenth century,
South Asia began to experience two
overlapping processes of change that
transformed patterns of production and
consumption in the region. These were the
rise of colonial rule, and the integration of
the region in the emerging world markets
for commodities, capital and labour;
globalization for short.2 By 1947, the
larger nations of South Asia presented a
paradoxical mix of acute rural poverty and
robust industrialization. The book describes
the changes in the structure of the economy
initiated by this dual process, and asks how we
should explain the paradox of extraordinary
achievements amidst poverty and stagnation.
Answers to the question can contribute to
a larger project in world history. Economic
historians are interested in finding out why
the world became more unequal in the two
centuries after the Industrial Revolution
began in Western Europe. South Asia, which
contains a large part of the worlds population,
is a necessary test for models that seek to
explain world inequality. Is the explanation
of persistent poverty to be found in colonial
rule, in globalization, or endogenous obstacles
such as geographical constraints or social
institutions? And if these variables were
responsible for poverty, how do we account
for the positive achievements? Does a world
region so difficult to categorize as success or
failure fit any general model at all?
The main interest of the book is with a
time span when colonialism and globalization
were active in the region. This is the reason
why the major part of the text is preoccupied
with a period that begins from 1857, when
direct rule of the Crown over what had been
territories acquired by the East India Company
was formally established, and ends in 1947,
when the nations of South Asia saw the end
of British rule in the region. The post-colonial
regimes radically recast external economic
relations, increased the size of the state, and
2 economic history of india
enhanced state control over the process of
economic development. Yet, 1947 was not the
end of history by any means. This work will
suggest that persistent poverty in post-colonial
India owed in part to the obstacles that the
colonial pattern of growth had neglected or
failed to remove, and that some of the positive
achievements of the post-colonial times can
only be understood with reference to the
colonial foundations. I return to the link
between the past and the present in the last
section of this chapter, and in the concluding
chapter (Chapter 12).
Colonialism and Globalization
The first process, transition to colonialism, was
under way for almost a century, 17571856.
During this period the English East India
Company annexed the Indian territories
that came to constitute British India. After
the Battle of Plassey or Palashi in 1757, and
especially after the grant by the Mughal
Emperor of the taxation rights of Bengal to the
Company in 1765, the Company established
a power-sharing arrangement with the
Nawab, or the Mughal governor, of Bengal.
The partnership was an unequal one, and
soon tilted towards absolute control by the
Company over the administration of Bengal.
In 1799, the Company defeated its principal
southern rival, Mysore, and in 18034 and
181718, overcame its major adversary in the
north and the west, the Marathas. In 1856,
after Awadh was annexed, the British territorial
campaign came to a stop (the major political
units of colonial India are shown in Map 1.1).
At the end of the mutiny that took place in
1857, India became a colony of the Crown.
About 60 per cent of the land area in the
present India, Pakistan, and Bangladesh
belonged then to British India (Table 1.1).
Outside British India, there were more than
500 princely states in South Asia, nominally
independent, but militarily dependent on the
British. They had by then come to terms with
British hegemony, in a one-sided relationship
the like of which no previous imperial power
in the region could claim to have enjoyed
(see also Figure 1.1). This relationship is
sometimes called indirect rule, though it was
qualitatively quite different from the indirect
rule that the European colonists developed
later in Africa.
The second process, integration of
the region with the world financial and
commercial system, had been active from the
eighteenth century, but its significance earlier
had been greater in some littoral regions and
weaker in the interior. The ratio of trade to
domestic product increased from possibly
12 per cent in 1800 to a little less than 10
per cent in the 1860s and to 20 per cent by
1914. International flows of income, capital,
and labour were larger in the colonial period
than before or after. Government transactions
became closely connected with the balance of
payments. By 1914, many regions of the world
which were rich in natural resources supplied
food and raw material to industrializing
Europe. Peasants and merchants in India
seized these new opportunities. The new
regime of trade signified a deeper engagement
of the domestic economy with the world
market.
The rise of British rule was not just a
political change. The new rulers did not arise
from the established ruling classes. They
were strangers. The British were a mercantile
population turning industrial by the end of
the eighteenth century, whereas India was
overwhelmingly agricultural. Being outsiders
and merchants, the new regime could initiate
policies and follow principles of governance
that upset the established (agrarian) order as
never before. Like any other Indian regime in
 introduction 3

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75 90

Map 1.1 India

the past the new rule was dependent on the and manufactured goods intensive in labour
taxation of landed wealth. However, it was and natural resources. Through commodity
also committed to protecting trade and private and factor market transactions, close ties
investment in the region, which was beginning developed between India and Britain, and
to play a major supporting role in Britains via Britain, between India and the rest of the
engagement with the world economy. India world. Colonialism strengthened globalization.
was crucial to Britain and the British Empire as Institutions and infrastructure necessary
a market for its manufactures, chiefly textiles, for a market economy to smoothly function
machinery and metals, and as a source of were set up, including uniform weights and
food, migrant labour, industrial raw materials, measures, contract law, unified currency, the
4 economic history of india

Table 1.1 Major Provinces in 1881, with Approximate Dates of Annexation

British Territories Dates of Annexation of Major Constituents Area in 000 square miles
Bengal, Bihar, Orissa 175765 150
Madras 1765 (Carnatic), 1766 (Northern Circars), 17929 139
(Dindigul, Malabar, Canara), 1801 (Ceded districts)
Bombay and Sind 180318 (Maratha territories), 1848 (Satara), 1843 124
(Sind)
Punjab 1849 107
Central Provinces and Berar 180318 (Maratha territories), 1853 (Berar) 101
North-west Provinces and Oudh 1775 (Benares), 1853 ( Jhansi), 1856 (Awadh) 106
Total British India 868 (58%)
Indian States Remaining 509 (42%)
Sources: Compiled from data in India, Statistical Abstract relating to British India from 1876/7 to 1885/6, London: HMSO,
1887; and Michael Fisher, The Politics of British Annexation of India 17571857, New Delhi: Oxford University Press,
1993.

railways, the telegraph, and a powerful state
committed to defending private property
rights. Export opportunities, well-defined
property rights, and the new infrastructure
encouraged peasant production for the market
in place of production for consumption or
local exchange. In turn, this commercialization
led to a limited form of peasant prosperity
and more efficient agriculture in several
regions. The profits made in these commodity
trades were reinvested by some business
communities in urban construction and the
erection of modern factories.
Dramatic as these changes were, they did
not produce dramatic rates of improvement
in average standards of living. In the late
nineteenth century, total and average incomes
grew at rates that did not compare badly with
the rest of the world. However, growth rates in
the interwar period slowed. Japan is a country
with which nineteenth century India tends to
be frequently compared for Japan and India
had similar standards of living till about 1850.
Given its rate of growth, colonial India would
have needed several centuries to double its
standard of living, a feat Japan seemed to
achieve in a few decades. The paradox here
is best expressed in the words of Raymond
Goldsmith:
If a percipient and knowledgeable economist, for
example, John Stuart Mill or Karl Marx, had been
asked in 1870 whether a century later India or Japan
would be more advanced economically and financially
and thus closer to the levels of Western Europe and
North America, it is possible, and indeed likely, that
he would have named India. To justify his choice, he
might have pointed to the facts that India, as a result
of its connection with Great Britain, possessed a
unified currency and the rudiments of Western-type
banking system, as well as easy access to the British
capital market and British industrial and financial
technology, then the most advanced available. Japan,
on the other hand, was just emerging from a decaying
feudal system; its modern sector was negligible; its
currency was in chaos; and it lacked modern financial
institutions. Neither Mill nor Marx would ever have
envisaged the abysmal difference that marks the
observed economic and financial development of the
two countries.3
Goldsmith overstated the paradox. The
modernization process that Marx foresaw in
British India was not an illusion. On the eve
of World War I, India, along with Japan and
imperial Russia, was one of the worlds most
successful examples of late industrialization.
The cotton textile industry in Bombay
 introduction 5

was soon to overtake Lancashire in the
Indian market. The jute textile industry in
Calcutta monopolized the worlds demand
for packaging material in commodity trade.
India had some of the developing worlds
largest banks, universities, technical schools,
printing industries, and railway and telegraph
systems.
The real paradox was that a century of
commercial agriculture and urban growth
had left no more than a dent in rural poverty
in India. On several occasions, sudden
failures of rain gave rise to dreadful famines
in the nineteenth century. Epidemic diseases
recurred with devastating consequences.
Levels of literacy were among the lowest in the
world. Women were invisible in livelihoods
that provided a reasonable wage. How then
do we read colonial India? Was it a case of
economic growth, or stagnation and crisis?
The question can be approached in a global
history frame, using India as an illustration
of theories about growth and inequality on
a world scale. In order to do so, we need to
consider how theories of economic change
in the long run can be used to formulate
questions about colonial India or to answer
them.
THEORIES OF ECONOMIC HISTORY
As a study of the origins of economic growth,
economic history allows us to investigate
those drivers of long-term growth that usually
remain exogenous to formal theoretical
models. For example, cultural make-up could
matter to technological innovation, but the
role of culture is usually left out of formal
economic theory. Other examples of relevant
variables are institutions, demography,

Figure 1.1 The Ruling Princes of India.

This crowded group appearing on an early twentieth century postcard represents a random selection of the princely
rulers whose collective support helped the raj rule in peace. The impressive sartorial display in the picture was one of the
many ways adopted to cover up the lack of real power. The illusion of power was carefully maintained by the raj.
Courtesy: Images of Asia.
6 economic history of india
geography and environment, and political
systems such as colonialism, market formation
or commercialization, and state formation.
Some of these variables change sufficiently
slowly to be treated as exogenous. Some others
simply cannot be handled adequately by
available theoretical models.
Four large variables that occupy a great
part of the economic history discourse
deserve particular attention. These are market
formation, institutions, politics, and resources.
Market Formation4
Modern attempts to supply general answers to
the question of what causes economic growth
began with Adam Smiths Wealth of Nations
(1776). The key to economic growth was the
productivity of labour. Only by increasing
the quantity that each individual was able to
produce could the average consumption or
income increase. Productivity would increase
if each individual concentrated on performing
one task rather than dividing up energy
and resources to doing too many (that is, if
individuals practised division of labour), and
concentrated on those tasks which they were
best able to do (that is, if they specialized).
Smith attributed technological change to the
principle that men are much more likely to
discover easier and readier methods when
they directed their attention to doing one
task. What drove the process was market
exchange. Individuals would produce more
than their own needs only when there was
a prospect of selling the surplus. The more
markets expanded, the more surplus would
be produced, the more efficient and more
specialized one would get, and the more
dependent one would become on the market.
Further on in his book, Smith also added that
markets, to perform these roles to the fullest,
must not be restrained. That is, markets must
be competitive. Otherwise they would tend to
push up costs of production.
Smith inspired several attempts to link
growth with markets. In 1969, John Hicks
developed a general view of European
history in terms of market formation. Before
Hicks, Hla Myint had offered a Smithian
interpretation of the economic history of the
tropical world. In the nineteenth century, the
prospect of exporting food and raw materials
to industrializing Europe led regions in Asia
and Africa to utilize their idle resources, chiefly
land and labour, more intensively. Markets, by
bringing idle resources into usage, increased
efficiency.
The link between markets and resource
endowments was further developed in the
classical and neo-classical theories of trade.
The HeckscherOhlin theory predicts
trade to take place because of international
differences in costs of production, in turn due
to differences in the supply of production
factors. Those goods that require relatively
large quantities of the abundant and cheaper
factor sell relatively low-priced in the world
market. Consistent with this principle, in
the nineteenth century the land-abundant
New World territories in the Americas
exported land-intensive products such as
grain, cattle, or timber, and the land-scarce
labour-abundant Europe exported labour-
intensive cotton textiles and people. In this
scenario, factor prices should converge in
the long run. Low-wage economies should
experience a rise in wage, and high-wage
economies experience a fall in wage. Trade
should lead to a convergence, or weakening
of inequalities between persons and nations.
Productive resources like capital should
migrate to capital-poor regions seeking higher
returns and in turn raising labour productivity

in the latter. Growth driven by the quality
of human capital, freer flow of knowledge,
and falling cost of acquisition of advanced
techniques should again induce convergence.5
These predictions are borne out in the case
of regions on both sides of the north Atlantic
that grew richer and more equal by trading
between themselves.6
But the whole world did not experience
convergence. In fact, world inequality
increased between 1820 and 1914, when
something like a world economy emerged. If
the factor price convergence worked at all, it
worked for a limited set of countries. Why did
it fail to work for the world as a whole?
There are many critiques of Smithian
growth. One of these tends to be pessimistic
about the growth potentials of primary
goods exports, which the tropical world
came to rely on. In the course of international
specialization, these regions suffer a
destruction of their handicrafts, or de-
industrialization. But specializing as a peasant
exporter could hardly offer the promise of
sustainable growth, owing to the operation
of diminishing returns to land. Modern
industry, on the other hand, offered scope
for increasing returns to scale. International
trade and specialization was therefore capable
of producing international inequality.7
Another link between trade and inequality
is suggested in the idea that agriculture is
subject to diminishing consumption demand
(Engels law) and terms-of-trade shocks.8
These pessimistic predictions somewhat
underestimate the fact that parts of the
tropical and temperate zones in fact became
richer by specializing in primary products
processing rather than by industrializing.
Canada, Australia, New Zealand, or South
Africa, despite the latters appalling record of
domestic inequality, should count as examples
introduction 7
that do not fit easily with the industrialize-or-
impoverish version of world history.9 Can this
difference be explained with reference to the
quality of institutions?
Institutions10
The new institutional approach to world
economic history dispenses with one of the
assumptions of neo-classical theory, that
the world we live in has a stable underlying
structure. The world is full of uncertainty, and
economic agents try to deal with uncertainty
by devising rules. Important forms of
uncertainty occur in the sphere of property
and contract. A good crop represents potential
profits, but if property rights on the land are
poorly defined and enforced, the producer
may not enjoy those gains, and not have an
incentive to produce a good crop. Market
exchange between parties who do not know
each other well enough increases the risk of
fraud and breach of contract. Uncertainties
of these kinds make transactions potentially
costly, and the transaction costs discourage
market exchange.
Institutions, together with the means to
enforce rules, create an incentive structure,
that is, encourage individuals to take certain
actions in preference to others. Growth-
begetting rules reduce uncertainty, transaction
costs, and encourage market exchange. Bad
rules do the opposite. In a society where there
are legal safeguards against fraud and these
are enforced properly, institutions encourage
more stable and mutually profitable economic
exchange. How does a society arrive at any
institution at all, good or bad? One solution
is the state. It is the polity that defines
and enforces the formal economic rules of
the game.11 On this point the institutional
approach encounters a problem. Polities that
8 economic history of india
are strong enough to enforce the rules of the
game are also strong enough to bend the rules
in favour of factions or particular players. A
tentative answer to the problem is represented
in the idea of credible commitment, meaning
sufficient competition and fragmentation in
political power to restrain the powerful rulers
from bending the rules.
In one approach within institutional
economic history, the crucial difference
between the rich and the poor nations can
be found in the quality of the legal system,
meaning fairness of law and enforcement by
the state. Another approach to the origins of
good rules looks at the society rather than the
state; in particular, considers profit-oriented
collectives such as guilds and corporations,
which devise their own command and control
mechanisms. One author concludes that the
formation of interest-based, self-governed,
non-kin-based organizations characterized
the late medieval commercial flourish in
Europe, whereas in other commercial societies
groups were formed from ties of blood or
marriage; and that interest-based corporations
contributed to Europes precocious advances
in science and technology.12 Historically, the
state-made rules and the collective-made
rules represented different ways of arriving at
the most important modern embodiment of
economic institutions, namely property and
contract laws.
The institutionist paradigm has been
mainly tested and debated in the context of
the rise of the modern West. Applied research
following this approach, and looking at the
history of the non-West is still a developing
field. Recent scholarship has advanced some
tentative propositions, nevertheless. One
proposition is that world inequality derived
from the policies of the European colonizers
with respect to taking the good European
institutions with them into the colonies. A
second position considers that the economic
outcome of legal regimes sharing a Western
root differed according to the system of laws
exported from the European colonist countries
to the conquered and colonized world. A
cluster of papers on the Americas shows how
the presence of a relatively egalitarian property
right regime in North America and ethnicity-
biased property rights in Spanish America,
contributed to divergent growth outcomes.13
The institutional approach tempers market
optimism by making gains from exchange
contingent on the quality of institutions.
In Marxist thought, the very act of market
exchange involves gain for some and
deprivation for others. The key to inequality
via market exchange is unequal asset holding
and the unequal political power that goes
with it.
Class and Political Power
Karl Marx distinguished the use value of
commodities and their market value, and
defined capitalism as an economic system
driven by the desire to produce goods with
greater market value. Capital consists of
commodities used to create other commodities
with higher market value than contained in the
inputs. The market value of labour (wage) is
less than the value it produces. This difference
(surplus value) the owners of capital extract
and accumulate. Many past societies witnessed
appropriation of surplus. In capitalism the
appropriation happens in the market by
owners of money and machinery. Class is
defined by the ownership of assets. Capitalists
own money and machinery, and labourers
own labour power. The cycle of extraction of
surplus value intensifies class struggle, which
in turn threatens to undermine the system.
In Marxs reading of European economic
history, capitalists extended their power by

the use of coercive means of several types.
In actual history, he wrote, it is a notorious
fact that conquest, enslavement, robbery,
murder, in short, force, play the greatest part
[in accumulation of capital].14 Capitalists
extended control of common lands from the
fifteenth to the eighteenth century, uprooting
peasants who crowded the towns as an
industrial proletariat. They plundered gold and
silver of the New World, and plundered newly
colonized lands in Asia and Africa to build up
reserves of capital. Curiously, Marx displayed
quite hopeful sentiment about the whole
process. He believed that colonization and
capitalism would help Asiatic societies shake
off their own tradition of despotic rules and
economic stagnation.
In the 1970s, a Marx-inspired theory
of European imperialism proposed that
nineteenth century empires were indeed
driven by capitalistic motives (see Box 1.1)
and that the exploitations that it sustained
impoverished and underdeveloped the
present-day developing world. These schools
were neo-Marxist in retaining an emphasis
on surplus transfer and class relations, but did
not follow Marxs own assessment of the non-
Western world as pre-capitalistic and stagnant.
If the whole world is seen to be divided
into two halves, one endowed with capital
and the other with labour resources, world
inequality can be explained by characterizing
the world production system as a capitalistic
mechanism effecting transfer of surplus. A
variety of schools of thoughtthe Latin
American dependency, the theory of unequal
exchange, and Andr Gunder Franks account
of the development of underdevelopment
explained the persistence of, and the origins
of underdevelopment in terms of transfer
of surplus, and emphasized colonialism as a
vehicle for doing so, even erected for that very
purpose.15
introduction 9
Connecting underdevelopment with
colonialism has not gone unchallenged.
Criticizing the Marxist theories of imperialism,
the maverick Marxist, Bill Warren, pointed
out that colonial rule had in fact produced
economic growth in many regions of
the colonized world, much as Marx had
predicted it would. Warren concluded that
underdevelopment originate[d] .. not in ...
imperialist-Third World relationships, but ...
from the internal contradictions of the Third
World itself . He did not elaborate on these
contradictions.16 Warren possibly went too far.
The problem with the neo-Marxist approach
(as well as the institutional approach) is
not that it underestimates growth in the
colonial world, but that it fails to account
for differences within the developing world.
Colonial Africa grew faster than colonial
India. Did colonialism succeed in producing
economic growth in Africa and fail to do so
in India? Post-colonial Africa, on the other
hand, suffered massive economic collapse, civil
strife, and state failure, whereas South Asia
experienced greater political and economic
stability. Did colonialism succeed in laying the
foundations for social and economic stability
in South Asia, while creating potentials for
instability in Africa? It would be senseless to
answer both questions with a positive. We
need an economic history that can account
for contrasts such as these. Neither the neo-
Marxists nor the institutionists supply an
account of world inequality that is sufficiently
sensitive to these differences.
One notion that the neo-Marxist writers
tried to displace was that the non-Western
world had been trapped in a pre-capitalist
culture. The modernization approach
influenced by these writings held that
economic growth required traits that made
people more rational, more calculative of gains
and costs, more frugal, and more innovative.17
10 economic history of india
By implication, the third world was poor
because it was too traditional (see also Box
1.2). The neo-Marxist development schools
criticized the modernization approach by
suggesting that being poor did not mean
being pre-capitalist or pre-modern. Colonial
domination and the rise of the West had made
the non-West poorer.
Both modernization and its neo-Marxist
critics found the phenomenon of emerging
economies in the 1980s and the 1990s difficult
to explain with their models. More than any
intellectual criticism, economic growth in
the newly industrializing economies in East
Asia damaged the modernization theory, for
East Asia was, in some accounts, culturally
distinct from the West. But it also damaged
the case argued by the neo-Marxists, for the
latter refused to acknowledge the possibility
of economic growth in the poorer world,
which would be driven by trading with the
richer world and would not need a political
revolution to shake off the dominance of the
richer world.
What did survive the turmoil was a vision of
world history in the very long run that joined
together a Smithian accent upon markets with
a Marxian interest in politics. One example of
a particularly successful neo-Marxist theory
of history is Immanuel Wallersteins world
systems analysis. This approach begins from
the premise that the nation and the nation-
state cannot be a useful unit of analysis of
economic history, for nation is a new idea
whereas the economy is a much older thing.18
Upon that premise, Wallerstein developed
his vision of the world economy in the last
500 years as a growing network of regions
integrated through the market; the regions
being interdependent for food, material, and
security; and characterized by polities trying to
compete for control over the whole network.
The idea has been influential as an approach
to global history. And yet, the explanation of
world inequality that derives from Wallersteins
framework consists of little more than the
Marxist idea of an international transfer of
surplus maintained by European colonialism.
All of these approaches to world history
implicitly assume that all regions of the world
initially shared similar conditions and had
equal chances of economic growth but for
differential access to trade, institutions, and
political resources. This assumption, of course,
is not a valid one to make. For geographical
conditions vary greatly.
Resource Endowments
Land and water resources in temperate Europe
and Saharan Africa are not comparable in
quality. If agriculture depends on low-quality
land that does not yield a surplus over
subsistence, where will the tax resources
necessary to build a strong state able to design
and enforce good institutions come from, and
what surplus will the capitalists extract and
accumulate?19 Even societies dependent on
fertile land and plentiful water can run out
of the resources needed to sustain economic
growth if population grows too rapidly. Clearly,
it is necessary to theorize the role of resource
endowments in economic growth.
The classical view on how population
matters is often called Malthusian, after the
classical English economist, Thomas Malthus.
The term Malthusian today is used in
different senses. Three different meanings can
be distinguished. One of these emphasizes the
welfare consequences of population growth,
the second emphasizes the economic growth
consequences, and the third the distributional
consequences. The welfare story is based on
two propositions: more food production,
 introduction 11

Box 1.1 Colonialism: The Origins

Tropical and equatorial Asia and Africa contained many colonies of European nations about 1900.
Although the term empire is often used in these cases, these modern empires were different from
pre-modern ones. Whereas the relationship between the core region and the periphery in pre-modern
empires was based on taxes and tributes, in the modern empires the relationship was capitalistic, that is,
based on an imperative to protect business interests.
The colonies were diverse entities. The diversity owed to local conditions as well as to the history of
colonization. British India started in the mid-eighteenth century from the intrigues of the English East
India Company negotiating trade licenses with the ruler of Bengal. By contrast, much of interior Africa
was colonized by the European states late in the nineteenth century, even though European slave traders
had long been familiar with the African littoral. Colonies were governed differently too. British India was
ruled by Britain directly, whereas in Africa, governance was often delegated to local chiefs and private
companies. The length and directness of rule, and the legacy of Mughal bureaucratic culture that the
British inherited, saw more political continuity and stability in India. In Africa, there was greater rupture
between the traditional and the modern states, unleashing much violence.
Where did modern empires spring from? One theory attributes it to mature capitalism. In one
definition, mature capitalism meant too much capital chasing too few profitable investments at home;
in another, it meant unsold goods seeking markets; and in a third, it meant the authority of monopoly
firms who had the capacity to sponsor colonization. The English economist J.A. Hobson stressed the
investment motive for territorial expansion. The Austrian-born German Marxist intellectual Rudolf
Hilferding believed that imperialism was funded by bankers. The PolishGerman activist and writer Rosa
Luxemburg stressed the consumption motive. The American sociologist James OConnor and the British
economist Tom Kemp discussed the role of politically connected multinationals.
Did colonialism derive from the profit motive? Evidence of an association between profitability
and colonization is weak. Capital export from the West to the non-West was small in extent outside
of railways and government bonds. Expansion was often driven by a desire to access particular natural
resources. While there were instances (like Congo under the Belgian king Leopold II) where such
resources were extracted with force, there were also colonies that exported little of value, consumed little
European goods, and had few European businesses, the French Saharan territories for example. Even
when the gains were large in absolute terms, questions remain on whether relative rates of return from
colonial investment were higher than alternative uses of capital, and how far the gains explained Europes
accumulation and growth.
The difficulty of explaining colonialism with profitability leads to other theories. Some of these
explanations, developed with reference to the British Empire, stress global political rivalries ( J. Gallagher
and R. Robinson), or the interests of the financial interests of London, the gentlemanly capitalists who
were keen to maintain a worldwide flow of funds (P. Cain and A.G. Hopkins).

Readings: A. Brewer, Marxist Theories of Imperialism, London: Routledge, 1980; P.J. Cain and A.G.
Hopkins, Gentlemanly Capitalism and British Expansion Overseas, Economic History Review (EHR),
39(4), 1986, pp. 50125, and 40(1), 1987, pp. 126. Patrick K. OBrien, The Costs and Benefits of
British Imperialism 18461914, Past and Present, 120, 1988, pp. 163200; Lance E. Davis and R.A.
Huttenback, The Political Economy of British Imperialism: Measures of Benefits and Support, Journal of
Economic History (JEH), 42(1), 1982, pp. 11930.
12 economic history of india
or more economic growth in an agricultural
society, will induce more births; and if
population grows too fast in relation to food,
famines and epidemics will become more
likely. The economic side of the story states
that adding more people to work on the land
will lead to a diminishing return to labour,
especially if continuous agricultural expansion
begins to degrade land. The distributional
side of the story states that population
growth, by making food relatively scarcer, can
reduce the real wages of workers. These three
propositions together paint a prospect of a
fall in average well-being that looms over any
densely populated agrarian economy, which
South Asia has been for much of the time
covered in this book.
How have these propositions stood up
to evidence? Food availability as a theory of
population growth is too simplistic. Amartya
Sen has shown that food availability as a
theory of famine is not too successful either.20
Ester Boserup proposed that steps to counter
diminishing returns by means of land-saving
innovation had been successful in the long run,
especially in Asia.21 The induced innovation
approach to agrarian growth suggests that a
growing population, instead of restraining
economic growth, can induce a shift towards
capital-saving and labour-intensive agrarian
technologies, increasing the productivity of
land.22 Consistent with these predictions, land
yield increased enormously in the modern
world, and especially in densely populated
regions in Asia. Until recently, most statistical
work relating population growth with
economic growth found the rate of population
growth to have a weak effect on, and
population density to be positively related to,
economic growth. Indeed, some studies have
found that low density and high landlabour
ratio can inhibit growth, possibly by making
landowners indifferent to investment.
Despite this evidence, interest in population
has revived in development scholarship owing
to new evidence from household surveys in
developing countries, which show that larger
families contribute to the persistence of
mass poverty. Large family size makes poorer
families less able to save for the education
of their children. High birth rate can be a
demographic burden and exert a negative
effect on economic growth by increasing
the proportion of children and reducing the
proportion of workers in the population, and
by diverting resources towards consumption
rather than saving and investment.23
Not surprisingly, economic history displays
some ambivalence towards the nature of the
role that resources play in long-term growth.
A 1960s scholarship on the rise of East Asia
placed emphasis on Boserupian response.
Historical scholarship on the origins of East
Asian economic growth observed a successful
turn towards intensive agriculture, which
played a role in sustaining industrialization.24
In explaining this turn, especially in Japan,
attention fell on the irrigation ratio, which
raised land yield via better flood control,
higher cropping intensity, and greater crop
choice. Investment in agriculture, sometimes
done by the governments, was a crucial
precondition for such growth. These lessons
cannot be easily generalized beyond East Asia
and the rice economies. Choices available to
the peasantry in rice-growing Japan in the
nineteenth century were not identical with the
choices available to the peasantry in millet-
growing Deccan or Sub-Saharan Africa. There
is nothing inevitable about the Boserupian
expectation that agrarian societies facing
diminishing returns will find a way out of
the impasse. Many societies living in the arid
tropical zones of the world have failed to find
a solution to extreme scarcity of good soil and
lack of a steady and plentiful supply of water.

Neither diminishing returns nor the avoidance
of the prospect is an inevitable outcome of
population growth. Their presence or absence
needs to be explained.
Some of these ingredients have been used to
construct a narrative of South Asian economic
history in modern times.
COMPETING NARRATIVES ON INDIA
India (and Pakistan and Bangladesh) is a
relatively new nation in the world. Notions
of its past continue to be influenced by
the memory of anti-colonial struggle and
nationalist heritage. Not surprisingly,
therefore, the idea that colonialism
impoverished a region that had been wealthy
and dynamic before British rule remains
prevalent in popular and academic history
alike. The proposition drew strength from
several intellectual traditions. The oldest
of these formed in reaction to imperialist
historiography. The more recent one
developed as an offshoot of the neo-Marxist
theory of imperialism.
Writings sympathetic to the British colonial
empire had stressed the modernizing impact
of colonial rule, which owed to political
stability, good governance, and the transfer
of knowledge and technology.25 These views
suggested that pre-colonial India had been
mired in political chaos and social stagnation.
Potentials for economic growth were created
in the nineteenth century, but India, being
trapped in a pre-capitalist culture, was unable
to utilize these opportunities. Colonialism
weakened these obstacles and ushered in
real capitalism. As we have seen, Marx, along
with many writers of his time, believed in this
possibility.
The imperialist assessment came in
for two kinds of criticism. First, an Indian
nationalist account, articulated in the early
introduction 13
twentieth century, stressed the unequal
distribution of the positive benefits of the
empire between the rulers and the subjects.26
Colonialism, in this view, aided a transfer
of the social surplus in the shape of forced
extraction of resources, called drain in
British India. Second, maritime and regional
history from the 1950s showed that in the
eighteenth century the subcontinent was a
major commercial hub in the contemporary
world, thus questioning the imperialist
presumption that pre-colonial India had been
trapped in pre-capitalist stagnation. A radical
reassessment of Indian culture, and the role
that cultural institutions played in business
history, came to be offered at the same time
(see Box 1.2).
In the third quarter of the twentieth century
a larger picture of colonial India was advanced,
now framing India within a neo-Marxist
story of world inequality and the genesis of
underdevelopment. This picture retained
the neo-classical emphasis on the emergence
of a new international division of labour
in the nineteenth century. During the first
globalization, the region experienced a decline
in industry and an expansion in agriculture, for
India did not have enough capital and skilled
labour needed for factory industrialization;
but there was sufficient unutilized land and
unskilled labour to enable an expansion
of cultivation. The resultant specialization
pattern contributed to world inequality, by
making the tropics exporting primary products
dependent on activities that promised slow
growth in income at best. The neo-Marxist
approach laid a large emphasis on colonialism
to this picture of market-led specialization.27
It was colonialism that sustained the trade,
investment, and specialization pattern.
Unlike the nationalist account, where the link
between colonialism and underdevelopment
was mediated by state-engineered resource
14 economic history of india

Box 1.2 Indian Society and the Economic History of India

Karl Marx and other nineteenth century writers considered that the social structure that characterized
India, divided into castes and communities, had strengthened despotic rulers and weakened private
enterprise. Based on an interpretation of Hinduism, the German sociologist Max Weber saw Indian
culture to be anti-entrepreneurial. By removing these endogenous obstacles to capitalism colonial rule
and globalization had a beneficial or modernizing effect upon India.
Since then, scholars have shown that the hierarchy and diversity, which these writers thought were
intrinsic to Indian society, were in fact quite fluid, and did not impinge on enterprise in quite so negative
a way. Business relations did not necessarily form out of social ties, but often out of shared professional
interests. The flourishing early modern trade from India showed how caste and community could be a
positive resource for business, by making it possible for merchants, bankers, and artisans to share risk or
information.
And yet, it would be rash to dismiss the negative assessment of caste and community. One recent
literature, associated with the work of Avner Greif, draws attention to the principle on which cooperative
communities formed. Greif suggests that interest-based, self-governed, non-kin-based organizations
played a major role in the modernization of Europe. This literature does not use India. But if this theory
is correct, then India, where professional groups usually developed around kinship and marriage, should
show how societies fail to generate endogenous growth. If we look closely at Indian history, there is
evidence that caste and community did not pose an insurmountable barrier to innovative behaviour;
but there is also support for the view that caste and community could pose barriers to exchange of
information between professionals who would gain by collaborating. While not restraining growth, such
barriers slowed down technological change.
Within economic theory, there is a renewed emphasis on group identity. One strand suggests that
caste-like groups, which make conformity to norm a positive moral value and any breach of norm a sin,
can suppress individual enterprise. Another strand makes the case that ethnic diversity tends to weaken
the impetus to spend on public goods, such as education. In one model, developed in the context of a
democratic setup, this outcome follows from assuming that the utility derived by one group from public
goods depends negatively upon the utility that others derive. Indian history, which supplies examples of
both conformity and low expenditure on public goods, deserves to be investigated in the light of these
ideas.

Readings: M.D. Morris, Values as an Obstacle to Economic Growth in South Asia: An Historical
Survey, JEH, 27(4), 1967, pp. 588607; Tirthankar Roy, Company of Kinsmen: Enterprise and
Community in South Asian History 17001940, New Delhi: Oxford University Press, 2010; Avner Greif,
Institutions and the Path to the Modern Economy: Lessons from Medieval Trade, Cambridge: Cambridge
University Press, 2006; Alberto Alesina, Reza Baqir, and William Easterly, Public Goods and Ethnic
Divisions, Quarterly Journal of Economics, 114(4), 1999, pp. 124384.

transfer or drain, in these writings the link was
mediated by class relations. Surplus extraction
and transfer through market exchange needed
local agents like landlords, headmen, and
moneylenders, shaping an exploitative class
structure. The resultant story is succinctly
stated by a leading contributor to the
literature:
The destruction of handicrafts ... led to the de-
industrialization of many third world economies in
the nineteenth century Most of the population
released in this process had to find an alternative

means of livelihood in agriculture The
phenomenon of de-industrialization was associated
with the penetration of railway networks into the third
world countries. [By encouraging crop exports] the
railway revolution .. turned the third world economies
inside out and enormously increased the intensity of
dominion of advanced capitalist countries over them.
The accompanying stress on cultivation of exportable
cash crops, on the vendibility of land as an asset,
and on prompt payment of obligations to the state,
landlords and moneylenders in cash, enormously
increased the economic power of the landlord,
the trader and the moneylender upon the primary
producer....28
The process began from de-industrialization,
was distorted by new forms of market power,
and held in place by colonial power.
This paradigm, which drew resources from
the neo-Marxist dependency approach as
well as home-grown nationalism, and which
I have elsewhere called left nationalist,
suffered a credibility shock after the economic
liberalization of India in the more recent
years. If the colonists choice of economic
liberalism had made India poor in the first
place, why should a return to market liberalism
produce robust economic growth today? Even
before this turn some of the main testable
propositions of the paradigm were questioned.
For example, drain had never been easy to
interpret, let alone measure. It was predicted
by the neo-Marxist approach that India
would specialize in primary goods exports.
In fact colonial India experienced impressive
industrialization, marking it out as one of
the strongest emerging economies of the
nineteenth century. The proposition that India
suffered de-industrialization is doubtful. There
is evidence to show that the destruction of the
handicrafts was a partial one, and the surviving
handicrafts gained from globalization (Chapter
6). Chapter 4 shows that class power as an
explanation for rural distress runs into many
problems of definition.
introduction 15
Another difficulty with narratives that
place too much weight upon the capacity
of the colonial state to do bad things (in
neo-Marxist stories) or good things (in
imperialist stories) is that, by any quantitative
benchmark, such as per capita revenue
generation, or the share of government
income in national income, the British Indian
state would appear to have been a very small
state compared with those in Western Europe,
or Russia and Japan. It was not as large and
powerful as historians have often imagined it
to be, possibly influenced by the illusion of
greatness that the rulers of India built around
themselves. It did not have the financial
capacity to sustain an interventionist and
intrusive set of policies. Out of this scepticism
about state-centred narratives there have
emerged a few other proposals on the sources
of economic growth in colonial India.
Morris D. Morris proposes that the
nationalists had exaggerated the capacity of
the colonial rulers to inflict damage. In fact
the capacity of the regime to effect substantial
changes was quite limited because of weak
public finances and its night-watchman
stance, which saw the state as provider of
security rather than an agent in development.29
B.R. Tomlinson has argued that the nineteenth
century markets brought substantial gains
for the peasantry. However, the end of the
first globalization and hardening of autarky
in the interwar world ended these gains.30 I
have proposed that on average agriculture
in colonial India did not produce enough
surplus value for either the capitalists or the
state. Poor soil, scarcity of water, and high
capital cost, restricted prospects of irrigation
with private means, gave rise to very low land
yield, and made diminishing returns likely
as population growth accelerated. Poverty
and underdevelopment derived not from de-
industrialization, but from the absence of an
16 economic history of india
agricultural revolution sustainable by private
savings.31
These revisionist stories have three
advantages. First, they broaden the scope
of comparative history by adding new
variablesstate capacity, markets, resources,
and institutions. Second, they rightly question
the fixation with the colonial state that the
imperialists, nationalists, and neo-Marxists all
share alike. A signal limitation of a colonialism-
centred narrative is that it makes it difficult
to compare India with, say, China, which
was poor but not colonized. The alternatives
do not suffer from that problem. Third, the
alternatives are better able to link the past
with the present. If indeed colonialism was
responsible for Indian poverty, the end of
colonialism should have seen a rapid decline
in poverty in South Asia. Since that effect did
not follow, surely there were other variables at
work keeping many Indians poor?
Both champions of the left-nationalist
approach, and its critics, share one common
weakness. They are all mainly interested in
finding out why India remained poor after two
centuries of capitalist transformation under
colonial rule. Is this a good question to ask? Is
it possible at all to categorize Indian economic
experience so simply as either growth or
impoverishment?
BEYOND COMPETING NARRATIVES
Both world historians and historians of India
have too long employed their intellectual
resources to show how India illustrates why
the non-West stayed poor even as the West
grew rich. The historian inspired by such
questions usually begins with abstract models
of the rise of the Western world, and looks
towards India, China, or Africa, in order to
find evidence to show that the conditions that
worked for the West were missing in the non-
West. They want to show that the non-Western
world failed to rise because it was different
from Europe in some crucial respects. The
present-day institutionists read this failure
in terms of institutional weaknesses. The
left nationalists read it in terms of politically
induced underdevelopment. The Weberians
see the failure in terms of the weakness of the
enlightenment values of individualism and
rationality. But all fundamentally offer a story
of failure for India, China, or Africa.
It goes without saying that using any of
these regions to illustrate its failure does not
help us understand the region well, and risks
homogenizing the quite diverse experiences
amongst the non-Western world into stylized
opposites of the West. A world region as
complex and large as India cannot easily fit
any theoretical model at all. Colonial and
post-colonial India was hardly an example of a
failure. Frustrating the pessimists of classical,
neo-Marxist or Weberian varieties, colonial
India retained a flourishing entrepreneurial
culture, which had obvious pre-colonial roots.
Frustrating the institutional pessimist, colonial
and pre-colonial India had strong property
rights, a clearly enunciated notion of a rule of
law, efficient business communities, a literate
elite, and the bureaucratic tradition upon
which a stable democratic state could be built
later. A moments thought will also show that
amidst such achievements, the region remains
home to the worlds largest pool of poverty
and illiteracy as well. Commerce, colonialism,
and culture, in other words, enabled growth
in some contexts, restrained growth in others,
and sometimes even led to a regression.
Economic history must acknowledge these
variations.
One obvious source of variation was the
pattern of inequality and diversity that had
been there before colonialism. The eighteenth
century economy of the subcontinent was

already a very uneven one. On the one
hand, there were present a rich indigenous
commercial tradition; territorial states that
respected private property in land and trade
because their own sustenance depended
on the peasants and the merchants; a large
literate elite running the fiscal administration;
and rich cities that were home to highly
skilled craftsmen. But the wealthy rulers,
traders, and artisans were confined to the
riparian, deltaic, and seaboard territories.
Much of peninsular India consisted of dry
lands, poor peasants, few roads, slow traffic,
few towns, forests, waterless uplands, and
uninhabited deserts. Transportation in these
parts was unsafe and hugely labour intensive,
artisanal production was of little value, and
the political actors were unstable, predatory,
and fiscally weak. Agricultural land in these
zones produced average yields that were
abysmal by European standards, stagnant in
the long run as far as one can measure, and
subject to violent fluctuations. In turn, the
poor quality of the soil, extreme scarcity of
water, few opportunities for long-distance
trade in grain, and the pervasive risk of failed
seasons, depressed potential investment
in land, and might have strengthened the
tendency to invest in precautionary savings,
private mercenary armies, or gold and silver,
for example.
With such divergent initial conditions,
globalization and colonialism could only
produce divergent outcomes. There were
significant gains. The superstructure of
artisans, merchants, and elites played a
vital role in the passage of empires. The
literate elite supplied the manpower needed
by the new empire, and thus softened the
transition to colonial rule. Merchants and
bankers forged successful partnerships with
European capitalists and the colonial state,
made money in new commodity trades,
introduction 17
and reinvested their profits into factories.
Peasants underlined the fiscal and political
stability of the regime. The artisanal tradition
survived an initial shock to eventually supply
labour and capital to small-scale industry.
But almost all of these gains were restricted
to a few industries, a few cities, and a few
districts endowed by water, good land, and
market access. The average picture was one
of a countryside that produced too little of
value before and during colonialism, and a
dissipation of some of the gains made in the
pre-war times in the interwar period.
What lessons do these diversities and
differentiations suggest to us? Debates in
world history are undoubtedly useful in
making sense of India. But we also need to
maintain a distance from such debates, and
treat India as a case in itself, for India was a
region characterized by a unique set of initial
conditions that came in contact with global
and external forces of change. What were
these initial conditions? In order to answer
the question, Chapter 2 surveys economic
trends during 150 years of transition, a time
when colonialism and the first globalization
consolidated their roots.
NOTES
1. For general accounts of the emergence of colonial
rule in South Asia, see C.A. Bayly (ed.), An Illustrated
History of Modern India 16001947, Oxford: Oxford
University Press, 1990, section II; David Ludden, India
and South Asia: A Short History, Oxford: Oneworld,
2002, chapter 3; Ayesha Jalal and Sugata Bose, Modern
South Asia: History, Culture, Political Economy, London
and New York: Routledge, 2004.
2. On globalization in the context of economic
history, see M.D. Bordo, A.M. Taylor, and J.G.
Williamson (eds), Globalization in Historical Perspective,
Chicago and London: The University of Chicago Press,
2001, pp. 13.
3. Raymond W. Goldsmith, The Financial
Development of India, Japan and the United States, New
Haven: Yale University Press, 1983, pp. 45.
18 economic history of india
4. Adam Smith, An Inquiry into the Nature and
Causes of the Wealth of Nations, in Edwin Cannan (ed.),
New York: Modern Library, 1937, chapters IIII. Also
recommended are John Hicks, A Theory of Economic
History, Oxford: Clarendon Press, 1969; and Hla Myint,
The Classical Theory of International Trade and the
Underdeveloped Countries, Economic Journal, 68, 1958,
pp. 31737.
5. Robert E. Lucas, Some Macroeconomics for the
Twenty-first Century, Lectures on Economic Growth,
Cambridge, Mass.: Harvard University Press, 2002, pp.
97108.
6. For an application, see Kevin ORourke and J.G.
Williamson, Globalization and History: The Evolution of a
Nineteenth-century Atlantic Economy, Cambridge, Mass.:
MIT Press, 1999.
7. Paul Krugman and A.J. Venables, Globalization
and the Inequality of Nations, Quarterly Journal of
Economics, 110, 1995, pp. 85780.
8. See J. Toye and R. Toye, The Origins and
Interpretations of the PrebischSinger Thesis, History of
Political Economy, 35(3), 2003, pp. 43767; Colin Clark,
Conditions of Economic Progress, London: Macmillan,
1940.
9. These regions, the staple theory tells us, used
their primary source of comparative advantage to invest
in and develop complementary forms of enterprise.
Melville H. Watkins, Staple Theory of Economic
Growth, Canadian Journal of Economics and Political
Science, 29(2), 1963, pp. 14158.
10. Douglass C. North, Economic Performance
through Time, American Economic Review, 84(3), 1994,
pp. 5968; and Douglass C. North and R.P. Thomas,
The Rise of the Western World, Cambridge: Cambridge
University Press, 1973, chapter 1.
11. North, Economic Performance, p. 361.
12. Avner Greif, Institutions and the Path to
the Modern Economy: Lessons from Medieval Trade,
Cambridge: Cambridge University Press, 2006, chapter
12, pp. 379405.
13. Daron Acemoglu, Simon Johnson, and James
A. Robinson, The Colonial Origins of Comparative
Development: An Empirical Investigation, American
Economic Review, 91(5), 2001, pp. 1369401; R. La
Porta, F. Lopez-de-Silanes, A. Shleifer, and R. Vishny,
The Quality of Government, The Journal of Law,
Economics & Organization, 15(1), 1999, pp. 22279;
Kenneth L. Sokoloff and Stanley L. Engerman, History
Lessons: Institutions, Factors Endowments, and Paths of
Development in the New World, The Journal of Economic
Perspectives, 14(3), 2000, pp. 21732.
14. Karl Marx, Capital, Volume 1, Harmondsworth:
Penguin, p. 874.
15. See Keith Griffin and John Gurley, Radical
Analyses of Imperialism, the Third World, and the
Transition to Socialism: A Survey Article, Journal of
Economic Literature, 23(3), 1985, pp. 1089143.
16. Warren Bill, Imperialism and Capitalist
Industrialisation, New Left Review, 81, 1973, pp. 344.
17. The economic history counterpart of the
argument can be found in Walt Rostow, The Beginnings
of Modern Growth in Europe: An Essay in Synthesis,
Journal of Economic History (JEH), 33(3), 1973, pp.
54780.
18. Immanuel Wallerstein, The Modern World
System: Capitalist Agriculture and the Origins of the
European World-Economy in the Sixteenth Century, New
York: Cambridge University Press, 1974.
19. A group of writers on African development
contend that tropical climate and poor access to seaports
explain the pattern of development in Africa better than
institutional deficiencies. See, for example, Jeffrey Sachs
and Andrew Warner, Sources of Slow Growth in African
Economies, Journal of African Economies, 6(3), 1997, pp.
33576.
20. Amartya Sen, Poverty and Famines, Oxford:
Oxford University Press, 1983.
21. Ester Boserup, The Conditions of Agricultural
Growth: The Economics of Agrarian Change under
Population Pressure, Chicago: Aldine, 1965.
22. Yujiro Hayami and V.W. Ruttan, Agriculture
in Economic Development, Baltimore: University of
Maryland Press, 1971.
23. To extend the link further, high death rates tend
to reduce savings and growth, because many workers
do not expect to live long and save for the future. Low
death rates and high life expectancy raise savings and
growth, because workers are induced to save for their
retirement. These results together imply that a low
population growth regime with birth and death rates
both relatively high is likely to generate poor economic
growth; but a low population growth regime with birth
and death rates both relatively low is likely to generate
high economic growth. Therefore, any simple cross-
section correlation between population growth rate
and economic growth rate turns out to be weak. Based
on such result, the demographic impact on economic
growth was underestimated in development scholarship
until recently. There is now a richer understanding of
why such poor correlations occur.
24. Shigeru Ishikawa, Economic development in Asian
Perspective, Tokyo: Kinokuniya, 1967/1974.

25. Perhaps the most important academic text
illustrating the neo-imperialist view is Vera Anstey,
Economic Development of India, Third Edition, London:
Longman Green, 1939.
26. The classic statement of the nationalist position
is R.C. Dutt, The Economic History of India in the Victorian
Age, London: Kegan Paul, 1906.
27. For general restatements, see Sumit Sarkar, The
Colonial Economy, Modern India: 18851947, Delhi:
Macmillan, 1983; and A.K. Bagchi, The Political Economy
of Underdevelopment, Cambridge: Cambridge University
Press, 1982, sections 4.34.5.
28. Bagchi, Political Economy, p. 34.
29. Morris D. Morris, Towards a Reinterpretation
introduction 19
of Nineteenth Century Indian Economic History, JEH,
23(4), 1968, pp. 60618.
30. B.R. Tomlinson, The Historical Roots of Indian
Poverty: Issues in the Economic and Social History of
Modern South Asia: 18801960, Modern Asian Studies
(MAS), 22(1), 1988, pp. 12340.
31. Tirthankar Roy, A Delayed Revolution:
Environment and Agrarian Change in India,
Oxford Review of Economic Policy, 23(2), 2007, pp.
23950; Agrarian Crisis in Interwar India: Retrieving
a Narrative, EPW, 41(52), 2007, pp. 5389400; and
Economic History and Modern India: Redefining the
Link, Journal of Economic Perspectives, 16(3), 2002, pp.
10930.
2
Transition to Colonialism
17071857
T wo ongoing debates in the historiography
of the eighteenth century have revived
scholarly interest in the economic history of
India in the century before formal colonial
rule began in 1858. One of these debates
explores the origins of international economic
inequality in the modern world (see Box 2.1),
which seemed to rapidly grow from the end
of the eighteenth century. The second debate
explores the link between, on one hand, the
military and political competition that saw the
East India Company emerge as a ruler of India,
and on the other hand, economic decline or
growth in the subcontinent.
Within a few years of the death of
Aurangzeb (1707), the last of the great
Mughals, the Mughal Empire began to
disintegrate. In Bengal, Hyderabad, and
Awadh, former provincial governors
established effectively independent rules. In
Deccan, eastern Rajasthan, and north-western
India, the Empire faced insurrection by
landlords and warlords. A number of new
successor states thus came into being, the most
powerful being the dominion of the Marathas.
Early in the second half of the eighteenth
century, the political balance of power began
to shift again. In 1761, the main Maratha army
lost a major battle to the Afghans in the wake
of a contest for hegemony over north-western
India. And in 1765, the East India Company
received the taxation rights of Bengal from
the Mughal Emperor. These events inserted
the Company in the north India as a potential
claimant to paramount power, which position
it could claim to have captured after the Third
Anglo-Maratha wars of 1818.
Early British writings on India considered
that the political contest between states had
adversely affected economic growth and
welfare in the eighteenth century. Recent
scholarship questions this inference in two
ways, by suggesting that the link between the
economy and the ongoing military rivalries
was in fact rather weak, and by drawing
a distinction between the first half of the

century and the second half.1 Notwithstanding
military contests in the interior, the seaboard
saw a flourishing export trade in textiles
financed with imported American silver. In
northern India, agrarian and commercial
expansion in the seventeenth century had
empowered the landed gentry, merchants,
bankers, scribes, and other literate officers
of the state.2 The position of these groups,
whose members did not come from traditional
families holding military and fiscal tenures,
was further strengthened in the eighteenth
century via revenue farming on which the
post-Mughal states depended. The thesis of a
capitalist consolidation, first advanced for the
western Gangetic plains, was later extended to
states in peninsular India. Thus, the eighteenth
century witnessed divergent tendencies, and
the consolidation of trends that anticipated the
economic structure of the nineteenth century.
The chapter presents an overview of those
trends that we can identify and discuss with
some confidence.
THE PASSAGE OF EMPIRES
The Subcontinent in 1750
Regimes and livelihoods anywhere tend to
be influenced by geography. In terms of their
physical features, five major subregions in the
Indian subcontinent can be distinguished: the
submontane, the western desert and savanna,
the floodplains of the two great Himalayan
river systems (the Ganges and the Indus),
the peninsular uplands, and the seaboard. At
the beginning of the eighteenth century, the
submontane lands had been largely forested,
and the desert and the savanna sustained only
pastoralist groups. In the other three zones,
settled agriculture was the norm, the main
source of living, and the main contributor to
taxation.
transition to colonialism 21
On average, the floodplains and the
seaboard had better soil in most places
than the peninsular, had easier access to
groundwater, and in some parts at least,
received adequate rainfall. The peninsular was
deficient in both respects, except in the narrow
river valleys. Proximity to the perennial rivers
in the floodplains enabled good agriculture.
The monsoon-dependent peninsular rivers
that flowed out of the uplands of central and
southern India provided a more limited and
uncertain source of water, and did not usually
supply reliable navigation prospects.
Owing to their ability to produce valuable
grains such as wheat and rice, the availability
of a larger agrarian surplus, and easier
transportation, the floodplains emerged as
seats of powerful imperial states, overland
trade, and flourishing urban centres. By
contrast, the Deccan plateau, that dominated
the map of the peninsula, was an agriculturally
poorer zone, growing locally consumed
millets, participating in distant markets to
a limited extent, and constantly exposed to
the threat of harvest failure. The peninsula
was home to smaller, less wealthy, and less
commercialized and urbanized states. It did
have segments of rich black soil that sustained
prosperous communities, but in general,
the plateau was water-scarce and resource-
poor. The seaboard in this picture formed a
politically ambiguous zone. Parts of itsuch
as the western Bengal delta, KrishnaGodavari
delta, coastal Gujarat, and Malabarwere
more involved in maritime trade than the
interior, and had long received foreign settlers.
Some of the states on the seaboard had the
economic means and the cultural make-up
to assert a degree of autonomy from the
land-based states. Yet, the autonomy was not
always backed up by effective military might,
leaving them vulnerable to conquest. In one
such zone, in lower Bengal delta, European
22 economic history of india
colonization began in the middle of the
eighteenth century.
Passage of Empires
From early in the eighteenth century, shortly
after the death of Aurangzeb, the empire that
had ruled over the floodplains since 1526
started breaking up into a number of successor
states. The break-up of the Mughal Empire
has been attributed to various factors, such
as fiscal crisis generated by constant wars,
Aurangzebs religious intolerance, the intrigue
of nobles and ministers, and the lack of
financial support.3 Perhaps above all, the factor
that mattered most was a shift in the balance
of power between the various constituents
that had served the state. Between 1690
and 1720, almost everywhere the equation
between the four major constituents of the
empirethe king, the commander or warlord,
the landlord, and the peasantwas beginning
to change, to the extent that the Emperor
found himself powerless to control the flow of
taxable resources towards the centre. In south
India, where Mughal claim to rule never took
very deep roots, chieftains, commanders, and
warlords established independent dominions.
In northern and eastern India, noblemen closer
to the imperial courts established effectively
independent regimes in the erstwhile imperial
provinces. Decline was hastened by the drive
to expand into the peninsular, facing strong if
uncoordinated resistance from the Maratha
forces. In part, the decline followed a larger
Asian dynamic that saw the decline of the
Persian and the Ottoman empires in the West
at the same time. The conjunction weakened
the hold of all territorial states in the Asian
region upon the Indian Ocean littoral. This
was a factor behind the ability of the European
merchant mariners to erect fortified and armed
trade settlements all along the coasts of west,
south, and southeastern Asia.
How did the political transition affect the
economy? In one view, the collapse of the
Empire and erosion of state capacity led to
revenue farming, intense local conflicts, and
atrophy of capital formerly connected with
imperial finance and luxury manufactures in
the towns.4 Other historians consider that it
also created new economic possibilities. Some
of the new states that emerged from the ashes
of the empire with little violence or resistance
managed to keep the old administrative
order intact. Bengal was the most important
example. Some scholars even contend that
Bengal, under the effective rule of a former
Mughal governor, Murshid Quli Khan, could
devise efficient tax gathering procedures,
encourage rural investments, and foster a
more prosperous agriculture.5 In the very heart
of the empire, its weakening hold encouraged
commercial accumulation and led the
landed elite to forge closer partnership with
merchants and bankers.6 Much taxation right
was being contracted away by fiscally weak
states, and commercial and financial interests
entrenched themselves by funding or using
such rights.
Above all, commerce consolidated itself on
the seaboard. On the Indian Ocean littoral,
during the 250 years following the Portuguese
mariner Vasco da Gamas discovery of the
sea route between Europe and India (1497),
European traders had been prominent
actors. Cotton textiles from Gujarat, Bengal,
and the Coromandel Coast began to define
new standards of fashion in the West, and
provided the means to buy Indonesian spices
for the European consumer. Land-based
Asian trade strengthened this accumulation
process in textiles, cotton, grain, and banking.
Europeans were aided in their enterprise by

access to American silver, and the backing of
mercantilist states in the shape of monopoly
trading licences and supply of arms. In the
seventeenth century their dominance had been
restricted to the seas and did not extent inland.
In the eighteenth century, the balance between
land and sea changed.
In order to carry out trade on the seaboard,
the Europeans needed to negotiate trade
licence with the territorial powers. As the
military and fiscal authority of these states
became weaker, a significant dose of bribery,
subterfuge, and arm-twisting was added to
the negotiation process. After Murshid Qulis
death, the faction-ridden and weak rulers
of Bengal were little more than pawns in a
game conducted mainly by the English East
India Company and their merchant friends
and enemies. Soon after, a small force under
Robert Clive defeated a local army in the
Battle of Plassey (1757). The remnants of the
territorial state all but disappeared and the
Company became the rulers of Bengal.
In theory, the transition began with an
order issued by the titular head of the Mughal
Empire, Shah Alam, granting permission to
the Company to act as the Dewan of greater
Bengal (representative of the Emperor in
charge of taxation). The order was issued in
1765. For several decades after this symbolic
event, systems of police and justice continued
to be left to another Mughal office, subahdar or
governor, represented by the old ruling classes.
Financial management itself was entrusted to
a member of the aristocracy, Muhammad Reza
Khan. This unequal partnership was doomed
from the start. The Nawabs relied heavily
upon the Company for military support, and
were judged, not without justification, quite
incompetent. English private merchants who
wanted to do business in the interior, needed
a stronger assurance to life and property than
transition to colonialism 23
what the crumbling system of law and justice
could guarantee. The devastating Bengal
famine of 1770, which took place when
Bengal was still ruled by this two-headed state,
illustrated for some British administrators
the impossible nature of the partnership.
Governance, therefore, was progressively
centralized, a task in which the Governor,
Warren Hastings, played a significant part
(see also Figure 2.1 on Bengal in a period of
transition).
Initially, a part of the taxes that the
Company earned from land was used to carry
out trade. But this option was soon closed,
as the Companys monopoly trading rights
were curbed, and declining demand for Indian
cottons in Europe killed its main business.
The regime settled down as a territorial power.
What kind of economy did the new regime
inherit?
ECONOMIC CONDITIONS c. 1750
Landed Property
In land administration, the British inherited
a system from the past regimes that can be
understood as a three-tier framework of rights,
consisting of the right to cultivate the soil,
the right to collect taxes from the cultivators,
and the right to grant taxation rights. These
three layers correspond in a rough fashion to
the three main classes holding an interest in
land: the peasant, the landlord or zamindar,
and finally the kings, the warlords, and
commanders, who asserted the right to reward
their military or governance services with land
grants. If this picture was broadly adequate for
northern India, it differed slightly and only in
one detail in the south. The middle-tier of a
landlord or zamindar located in the village was
relatively rare or less well-articulated in the
24 economic history of india

Box 2.1 The Great Divergence and India

From the end of the eighteenth century, international economic inequality began to widen. Even as there
was diminishing inequality among nations on both sides of the north Atlantic, the whole world became
more unequal than before, largely owing to slow growth in Asian countries like India and China.
In one view, Western Europe already had higher standards of living than Asia in the eighteenth
century, suggesting that present-day inequality had older roots. Until the early post-war decades,
Enlightenment rationality explained these roots. From the 1980s, institutional explanations gained
ground (see Landes, and Maddison, for discussion). In a more recent literature, the accent has fallen on
the unequal access to natural resources after European settlement of the New World. Kenneth Pomeranz
suggests that Europe could overcome Malthusian barriers in the nineteenth century owing to easier
access to global energy resources and New World land, whereas a coastal China region studied in the
book faced diminishing returns. Andr Gunder Frank made a similar claim, also emphasizing the role of
American silver in enabling Europeans to access Asian goods.
These claims rely on an indirect test, that Western Europe had similar standards of living as the more
developed parts of Asia in the eighteenth century, suggesting that present-day inequality had recent,
possibly exogenous, roots. Pomeranz builds the case on a demonstration that coastal China in the mid-
eighteenth century was much more like ... Western Europe than we have usually realized. A similar point
has been made with reference to deltaic south India by Prasannan Parthasarathi. If initial conditions were
similar rather than different, inequality may have owed to uneven access to natural resources or political
resources, though there is no theoretical link between the two sides of the argument.
Were initial conditions similar between Britain and India? New research tends to reject the hypothesis
that they were similar. India was poorer and institutionally less developed than Britain about 1770.
How had conditions changed since the beginning of Mughal decline? Did India become poorer? On
this subsidiary question, current research tends to be speculative and unreliable. Older studies on land
productivity seemed to suggest a fall in yield in eighteenth century north India, and some recent studies
suggest similarly a fall in real wage. Serious problems with units of weights and measures, definition of
wage, and price indices, continue to vitiate such results.

Readings: F. Bourguignon and C. Morrisson, Inequality among World Citizens: 18201992, American
Economic Review, 92(4), 2002, pp. 72744; David Landes, The Unbound Prometheus: Technological
Change and Industrial Development in Western Europe from 1750 to the Present, Cambridge: Cambridge
University Press, 2003, pp. 1314; Angus Maddison, A Comparison of Levels of GDP per capita in
Developed and Developing Countries, 17001980, Journal of Economic History (JEH), 43, 1983, pp.
2741; Kenneth Pomeranz, The Great Divergence: China, Europe, and the Making of the Modern World
Economy, Princeton: Princeton University Press, 2000; Andr Gunder Frank, ReOrient: Global Economy
in the Asian Age, Berkeley and Los Angeles: University of California Press, 1998; Prasannan Parthasarathi,
Rethinking Wages and Competitiveness in the Eighteenth Century: Britain and South India, Past and
Present, 158, 1999, pp. 79109; S. Broadberry and B. Gupta, The Early Modern Great Divergence:
Wages, Prices and Economic Development in Europe and Asia, 15001800, Economic History Review
(EHR), 59(1), 2006, pp. 231; R.C. Allen, India in the Great Divergence, in J.G. Williamson, T.J.
Hatton, K.H. ORourke, and A.M. Taylor (eds), The New Comparative Economic History: Essays in Honor
of Jeffrey G. Williamson, Cambridge, Mass.: MIT Press, 2007, pp. 932; Roman Studer, India and the
Great Divergence: Assessing the Efficiency of Grain Markets in Eighteenth- and Nineteenth-Century
India, JEH, 68(2), 2008, pp. 393437; Tirthankar Roy, Economic Conditions in Early Modern Bengal:
A Contribution to the Divergence Debate, JEH, 70(1), 2010, pp. 179194.
 transition to colonialism 25

Figure 2.1 Murshidabad, with Nawabs House, c. 1814-15.

Watercolour by Robert Smith. Murshidabad was the capital of Bengal from 170472, and Calcutta was the capital there-
after (all administrative offices were not transferred until 1790). The first half of this time span saw the rule of one of
the most powerful post-Mughal kings, Murshid Quli Khan. During the second half, a series of weak rulers and palace
intrigues led the English, the French, and the Dutch Companies to try harder to influence the king, with a view to obtain-
ing easier trading rights, and to keeping each other out. The plot to overthrow the Nawab of Bengal, Siraj-ud-Daula, was
hatched here by prominent Indian and English merchants of the city. Kasimbazar, located near the capital, was the main
port and storehouse of the English East India Company. Source: British Library

south. Instead, we encounter warlords living
in isolated forts, who asserted the right to
reward themselves with land tax, but did not
necessarily form parts of an imperial nobility.
Each one of these levels was differentiated.
Peasant rights to use land could be individual,
village, or kin rights, with or without rights to
the commons. Those in possession of the right
to collect taxes consisted mainly of military
officers. In northern India, the grant of a
mansab, or the assignment of a military rank,
carried along with it the grant of a jagir, or
assignment of land, whose revenues the holder
of the jagir could live on. In turn, the jagirdar
farmed out the right, or appointed officers to
administer the revenue system. The right to
grant tax collection was thus diffused through
many layers of authority, but ultimately
vested in the person of the Emperor. Clearly,
the three types of rights could not always be
distinguished, but conceptually, the distinction
between rights to cultivate, to tax, and to
collect tax, is useful in explaining the pattern of
institutional change to follow.
James Grant and other eighteenth century
British civilians who wrote on land tenure in
the newly acquired territories of East India
Company, believed that private property
rights had never existed in India, because the
king was, according to the ancient theories
of statecraft, the sole proprietor of land.7 All
peasants, then, were tenants of the state, and
26 economic history of india
all rural magnates were officers of the state.
The premise carried over into the influential
writings of Karl Marx and Fernand Braudel on
Asian land systems.8 Grant had overgeneralized.
Any presumption that peasant property was
fundamentally insecure as a result, or that land
market and private property in land did not
exist in pre-colonial India, must be qualified
in the light of current historical scholarship
on the subject. There is evidence of sales of
land and proprietary rights in northern and
southern India for centuries before the colonial
property laws were instituted. In Grants own
time, many tax collectors tried to establish
some sort of proprietary right on the lands
that they managed. There is also sufficient
evidence that peasant property was ordinarily
secure, that is, the right to cultivate land was
generally protected by the local authorities
almost without exception, as one would expect
in a situation where peasant labour was scarce
relative to the potentially cultivable land, and
where breaking new land was extremely labour
intensive.
It would still be an error to consider
that pre-colonial and colonial periods were
equivalent in respect of peasant property
right. There were important differences
between these periods. First, even if sales did
happen earlier, they were neither a common
occurrence nor did they have a uniform legal
meaning, protected by courts of law. Generally
speaking, alienation was more difficult in pre-
colonial India because of the entanglement
of a variety of interests on agricultural land.
Income of tax officers and that of the peasants
were interdependent, which would mean
that the former had a say in land sales. Every
plot of land was, thus, subject to a welter
of rights. Colonial law by contrast removed
the rights of tax collectors upon land, and in
principle reduced the problem of multiplicity
of overlapping rights. And second, private
property was rarely vested in individuals in
earlier times. Kin, clan, and community had
stronger rights than did individuals. On this
point, colonial law was only a limited form of
change, as we shall see.
The economic motives for active land
transactions were weak too. In a world where
the main productive resources, labour and
knowledge, were scarce, the chiefs and
notables who lived upon a share of the taxes
that they collected would have an interest in
restraining rather than encouraging private
transactions in land. The peasant community
who controlled the commons had an interest
too in not allowing frequent entry and exit
of individual members. Besides the welter
of rights, another factor that weakened the
land market was the low levels of peasant
profits. In the agrarian history of Mughal
India, agriculture hardly appears as a source
of private profits, barring a few exceptions.
With agricultural profits virtually nonexistent
or irrelevant, it is hard to imagine land
ownership or user rights being traded actively.
Agricultural land was not generally seen
as an asset or a store of value. The limited
market and transportation weakened any such
tendency.
In this scenario, agricultural growth took
the form of extensive growth or bringing new
land under cultivation, a project that required
political resource. The nearest equivalent
to agrarian entrepreneurship involved the
ruler or conqueror offering tax-free grants to
a community of migrant peasants to induce
it to clear forests and wastes. The lands were
expected to add to the resources of the state
when a few years later they could be taxed.
Among those who held proprietary rights
on land, it is possible to make a distinction
between four general types, the typology
shaped by the fiscal institutions in place. There
were individual cultivators; individuals holding

a share in jointly owned village land; holders
of offices who were granted revenue-free or
lowly-assessed land; and chieftains of forested
zones populated by indigenous peoples, who
usually paid lump sum tributes rather than
taxes on assessed lands. Individual proprietors
appeared, usually in fertile regions such as the
eastern Gangetic plains, and were drawn from
the upper castes. Their prosperity depended on
the level of exaction the land could sustain, and
the amount of land they had control over. Thus,
they were weaker in areas with low landman
ratio and high population density. In regions
around Delhi, by contrast, the usual proprietary
body was represented not by an individual
but a collective of kinsmen who managed the
administrative and economic affairs of a village.
Some of these village republics, as the British
called them later, arose from pastoral groups
acquiring land in the course of the eighteenth
century. In western and southern India in
general, the proprietary right was expressed as a
share in total village land. The root of both the
northern and the southern or western system
was the notion of a coparcenary community
of landholders that seems to appear in muted
forms in many regions of India.9 In southern
and western India, such shareholders were
called mirasdars. The term literally meant
holder of a hereditary right. In practice they
were substantial cultivators claiming descent
from an original settler family or lineage. Mirasi
rights were saleable. Such sales were rare in
western India, but not so rare in southern India.
Mirasdars could lease their land to tenants, but
tenants in mirasi areas were a minority.
In western and southern India, joint
landlordship went along with a distinct role
for offices of the state located in or near the
village. Two offices were critical and universal,
headman and accountant. Here there was a
broad contrast between western and southern
India. Offices of a varied kind were occupied
transition to colonialism 27
by mirasdars in Tamil villages. Their duties
included revenue collection and investments
in agriculture such as construction of irrigation
systems. Such offices were performed by state-
appointed officials in the Peshwa territory. By
1800, towards the end of Peshwa rule, rampant
revenue farming weakened the power of these
officials. The main holders of inam land were
these officials. Inam lands were lowly-assessed
land grants usually made to temples, village
servants, artisans, and men of special merit.
The actual cultivators of the soil, or those
in possession of the right to till a plot of land,
were broadly two distinct classes ... a relatively
small group of owners with hereditary
transferable rights in land ... and the many who
tilled the land without such rights.10 In many
regions, the distinction followed some notion
of an original settler (khudkasht) and later
immigrants (pahikasht). Below the cultivators
were the agricultural labourers, who were not
ordinarily entitled to cultivation rights. Such
people were common in the Tamil Nadu and
Kerala regions, but less common elsewhere.
Between the workers and the peasants
were many types of tenants whose rights to
cultivate, or occupancy rights, were hereditary,
secure, and alienable in different degrees.
Transformation of Property Rights in the
Eighteenth Century
Of these three levels of rightto till, to
collect taxes, and to grant tax-collection
rights to othersthe right to collect taxes
began to show evidence of commercialization
from the seventeenth century onward.11
Correspondingly, those who depended for
their livelihood on the right to collect taxes
was the class that experienced significant
change in composition, opportunities, and
risks. Earlier, these rights had been both
heritable and saleable, though sales were not
28 economic history of india
common. Failure to deliver revenue to the
treasury invited punishments, but did not
usually lead to expropriation, because these
rights had been tied with a promise to supply
soldiers when necessary. But the collapse of
the Empire, and the rise in its place of smaller
states with insecure administrative and financial
resources, led to a change. Revenue rights were
now exchanged, not for military service, but
for taxation service. The rulers were forced
to offer terms that made the revenue rights
more marketable. Out of such circumstances,
commercialization of taxation proceeded apace
in the eighteenth century. In turn, this process
could lead to growing intensity of conflicts
between rights, as tax farmers tried to convert
rights acquired from the state into something
like private property, often in conflict with
communal rights.12
The process of political and economic
consolidation of the middle-tier is sometimes
called gentrification. The landlords enhanced
their social power, and took over many of the
governance functions of the state. Inequality
in wealth began to be expressed in the idiom
of caste and status.13 Over the whole length
of the Gangetic plains and deltaic south,
gentrification was present. In northern India,
the zamindars and the talukdars; in eastern
Rajasthan, the bhomias; in deltaic southern
India, the mirasdars; all commanded more
land than before. Moreover they strengthened
their local political and economic power
by manipulating, to their advantage, the
increasing dependence of the state upon them
for taxation.
At the same time, merchants and bankers
participated in the eighteenth century land
market more often. Merchants had always
played a critical role in running the fiscal
system; for example in converting grain
revenues into cash. From the eighteenth
century, merchants and bankers were also
collecting taxes. [M]oney [became] a crucial
component of agrarian relations.14 Through
revenue farming, a substantially reconstituted
class of tax collectors appeared in the third
quarter of the eighteenth century.
Even among the peasantry, a crystallization
of property rights had begun to happen as
a result of a growing commodity trade in
grain, cotton, indigo, and opium. There is,
however, no evidence suggesting that land
market transactions freed itself from the welter
of rights problem. Some authors note the
presence of an informal peasant property right
in the Deccan towards the end of the eighteenth
century.15 And yet, contemporary descriptions
of these rights do not suggest that actual sales
were either common or easy. Land deals were
technically possible, but bogged down in
transaction costs.
In late eighteenth century Bengal, when the
East India Company received revenue rights
over the territory (1765), many individuals
had already come to control large estates
through the process of tax farming. The so-
called zamindars were in theory tax collectors,
but in practice also administrators of their
territory. Some hailed from old military
families, and some had been creditors to such
families. They were in charge of law and order,
settled local disputes, and were required to
supply forces to the state if necessary. One
occasion when zamindari troops thus needed
to be mobilized was during the Maratha raids
in Bengal in the 1740s. In other parts of the
country, exact counterparts of the northern
zamindars were rare. In the southern Andhra
area there were warrior chieftains the British
called poligars; in areas close to Ahmedabad
in Gujarat, there were similar local chiefs
whom the British called talukdars. All such
people strengthened their rule over land as the
regional ruling power weakened.

Land Revenue in Pre-colonial India
In Mughal India, no uniform rate seems to
have applied to all lands and regions. However,
the common shares of the state fell between
one-third and one-fourth of the gross produce;
even half of the produce was not unknown.16
Among the Marathas and in south India, rates
like 50 per cent of gross produce off irrigated
land, and one-third off dry land, seem to
have been usual. Actual collection from the
peasant was invariably less than the stated
rate, especially when adjusted for the lowly
assessed lands. The revenue system had a
history of remissions and rescheduling in times
of stress. In all regions, a large proportion of
the tax collected was distributed amongst the
tax collectors themselves. By some estimates,
the proportion was 6080 per cent of the
collection. The retained amount was not all
income for the tax collectors, but spent on a
variety of administrative and military services
that they depended on.
Irrespective of the rates of extraction, it is
generally agreed that the burden of taxation
on the cultivators was a heavy one. What was
left in the village after collections was mainly
used for consumption. The likelihood that
the tax collectors and the state tried to take
away much of the surplus over subsistence
suggests that the market for mass consumption
goods was severely restricted in the rural
world.17 Consequently, while rural industry
was dispersed, its consumption, technology
and organization were of the crudest sort.
Rural industry was performed by family units
producing with simple, locally fabricated tools
for the subsistence consumption of villagers.
The tax collected from land had to maintain
a public administration, and consumption
by those directly, or indirectly, connected
with the state. Even here, inequality was
extreme. In Mughal India, a few hundred
transition to colonialism 29
families had access to a very large share of
the gross agricultural output of the nation.
A considerable part of the state income was
spent on palaces, administration, and the army.
Productive public investment, consisting of
roads and irrigation, was neither a sustained
commitment nor a large one, and fell far
short of the level needed to make a significant
difference to rural producers. Those connected
with the state were on average wealthy and
their consumption provided a sustained
demand for high-quality crafts and services.
Numerically the consumers of high-quality
crafts were a small minority compared to the
cultivating population. However, their average
purchasing power was enormous. Trade
between rural consumers and urban producers
virtually did not exist. Trade between rural
producers and urban consumers was limited
to a few goods such as raw silk, indigo, sugar,
salt, and saltpetre. The greatest sphere of trade
in manufactures was that within and between
the towns, or between towns and specialized
manufacturing villages in a relatively urbanized
northern India.
Village Community
Early British views on the Indian village
were dominated by the notion of a village
community. Henry Maine, the architect of the
idea, saw the Indian village as a political unit
that took vital decisions jointly, framed and
implemented communal property right and
communal law, which could only be possible
by maintaining a deliberate distance from
markets.18 Along with political autonomy,
there was economic self-reliance as well. The
bulk of the rural manufacturers and services
were exchanged within the village by various
artisans and suppliers of services who received
fixed shares of the total grain retained by the
village. Such a system of barter could naturally
30 economic history of india
arise in a situation where long-distance trade
was difficult or costly. That factor apart, fixed
shares of crop have been known to exist, and
seen as a response to risk of starvation in times
of famine. That is, it has been seen as a kind of
insurance against famine extended by landed
people to the non-landed ones.19 There is
no evidence on the point of how well these
customary obligations withstood acute crises.
Barter exchange of grain for labour
and grain for manufactures were indeed
quite common in pre-colonial rural India.
However, the scale of such exchange varied
between regions and over time. It was more
articulated in western or northern India than
in Bengal, and weaker by 1750 compared to
earlier periods. Rarely were such transactions
confined within one village. More usually, a
cluster of villages or a small region transacted
within itself the bulk of what it needed. Thus,
small market places and weekly or periodic
markets had a function within this local system
of exchange.
The village community was seen by the
Indian nationalists in normative terms, as
a system that made the village integrated,
self-sufficient, non-commercial, changeless,
and egalitarian. Such claims cannot be made.
Markets did exist in villages. Some products
such as cloth rarely participated in product
sharing. The egalitarianism is a myth. The
inequality between superior right-holders and
labourers was deep and ingrained. In 1813, in
southern Andhra villages, a rich cultivators
average consumption was about twice that of
the poorest.20 In the nineteenth century, those
who died during famines were predominantly
small farmers and labourers. There is no
reason to believe that the situation was any
different in periods before.
Shorn of the image of a self-regulated,
benign, democratic club, the broad features
of the village community, namely, barter,
customary dues, production for local
consumption, and a caste-based specialization,
did occur in large parts of India. Not until the
end of the nineteenth century did they finally
crumble. These communities may even have
become internally stronger in some places
that suffered repeated external threats, such as
marauding state armies.
Industry
Rural and urban artisans produced mainly
for local consumers. The two sets of local
consumers were vastly unlike one another.
Rural industries included textiles of the coarser
kind, pottery, agricultural implements made
of wood, and iron, sugar, leather, and oil. The
main unit of production was the family, and
sometimes, small collectives of artisan families.
The organization of production was simple
and rarely involved extensive division of labour
or specialization by task. Some other rural
products, such as raw silk, salt, saltpetre, and
indigo, were produced in the villages by part-
time peasants, but were traded more widely.
Urban industries included finer textiles,
carpets and shawls, decorative metalware
and pottery, wood and ivory carving, and
manufacture of arms and musical instruments.
The superior economic and political power
of the consumers led to high degrees of
refinement in urban craft. Proximity to
power was important for these crafts for two
reasons, consumption, and protection from
piracy. By and large, industry and trade in
high-quality goods were dependent entirely on
the affluence of ruling aristocracies and land
controlling elites.21
Proximity to power also led to the
economic subordination of the producers
to the consumers. Some of these crafts were
performed in karkhanas (literally factories)
or departments owned by the courts and

other wealthy consumers. Unlike pre-modern
European industry of the towns, the presence
of guilds is rare, almost unknown, in India.
There were some examples in Gujarat. But
even these were not institutions with well-
defined economic functions, nor as powerful as
the European guilds frequently became. Urban
artisans were powerful in their own community
and milieu, and sometimes wealthy too, but
did not possess anything comparable with the
political power that town guilds in Europe
could command. One author writes, virtually
every relevant feature of the economy, society
and the state was designed to hold the artisan
firmly down to his lowly place ...22 The picture
needs to be qualified, but it is not altogether
wrong.
Political decentralization in the eighteenth
century dispersed the skilled urban crafts that
earlier had a strong bias for a few cities in the
Mughal heartland; notably Lahore, Agra, Delhi,
and Multan. Now skilled crafts flourished, or
began to congregate, in Benares, Farrukhabad,
Lucknow, Moradabad, Jhansi, and Gwalior in
north India, Bijapur, Ahmadnagar, Aurangabad,
and Warangal in the Deccan, and Madurai in
the south. Each one of these sites was similar
to craft towns in Mughal north India, in that it
flourished because of aristocratic consumption
and protection. Nevertheless, the dispersal was
significant in the long run for the pattern of
regional industrialization.
Relative to the rural crafts, the refinement
attained by the urban crafts was immense.
This was evident not so much in technology,
but in the use of costly materials like gold
thread or pashmina. This was also evident
in organization. Division of labour and
specialization were more advanced in these
industries. Consequently, craftsmanship
attained considerable proficiency. There was
a greater degree of mercantile activity in high-
quality industrial goods, for these goods were
transition to colonialism 31
sometimes exported and/or used imported
raw material. Money and credit were also
more visible in this sphere. In certain towns
located on both western and eastern coasts,
a highly developed semi-urban industry was
shipbuilding. Unlike the rural industries, it
had served a wider market, for it served trade
rather than rich consumers.
Foreign Trade
In the past, the Indian subcontinent had
been a major link in the maritime trade
between Asia and Europe. A coastline 4,600
miles long, easy access from both West and
East Asia, local availability of textiles and
other goods in demand worldwide, a well-
developed shipbuilding industry, and strong
mercantile tradition, contributed to Indias
strategic position in the Indian Ocean trade.
For centuries before Vasco da Gama arrived in
India, Asia had been a prominent trading zone.
Da Gama and other early Portuguese explorers
found Europeans already present in the Indian
ports. Some of them conducted trade via
overland routes in collaboration with Genoese
and Venetian merchants. For a long time the
Europeans utilized commodities, routes, and
systems established in that trade in partnership
with local merchants.
Before the arrival of the Portuguese, the
mercantile marine operating on the Indian
coasts was divided into several clusters, the
most important of them being located in
Gujarat, Malabar, Coromandel, and Bengal.
The Arabian Sea trade conducted between
Gujarat and Malabar at the Indian end and the
Persian Gulf and Red Sea ports at the West
Asia end was of great antiquity. Shipbuilding
was an established tradition in both these
regions, and the best timber for such industry
came from the Western Ghats in modern
Kerala. Indian ships called on the ports of the
32 economic history of india
Red Sea and the Persian Gulf. The market of
the hajj, wherein converged caravan trade from
a large area, was one of the principal conduits
through which Indian goods, chiefly textiles
and spices, found their way to European
markets. In the East, Javanese shipping carried
Indian textiles to the Spice Islands in eastern
Indonesia in exchange for spices. The linking
of sea routes and land routes, or the port cities
with the interior, was as yet weak. In turn, the
territorial powers did little to create and sustain
port towns. These were rather the creation of
the Indian Ocean.
Two new variables were added in the
sixteenth century: Portuguese control of
the sea routes, and the rise of continental
monarchies, the Mughal, the Safavid, and
the Ottoman empires in the western part of
the Ocean (on the Portuguese rise, see Box
2.2). The second factor strengthened the hajj
network, built stronger links between the sea
and the land-based trades, and induced Indian
merchants to venture into Central and Western
Asia. The Ottoman and the Portuguese tried
to redirect and monopolize trade routes. The
Portuguese tried to impose monopolies in the
spice trade. But such moves did not depress
trade, for the local merchant groups purchased
the passes and traded as before. The history
of these monopolies was not very long-lived.
By the seventeenth century, the attempts
had waned as the Portuguese became too
interested in East Asia to be able to enforce
the monopoly in West and South Asia, and
the Mughal state threatened action on land
if the Europeans seemed to threaten Indian
merchants in the sea. Above all, the entry of
the Dutch and the English checked Portuguese
naval power considerably.
The formation of the English East India
Company in 1600 (from 1708, formally,
United Company of Merchants of England
trading to the East Indies) under a royal
charter, and the merger of several firms
trading in the East Indies into the Dutch East
India Company (Vereenigde Oost-Indische
Compagnie) in 1602, announced an era that
saw India being drawn more firmly into the
Indian Ocean trade. These enterprises had an
interest in buying spices from the Indonesian
archipelago, and found Indian cotton textiles
a convenient means of payment. Initially,
therefore, north Europeans remained part of
the traditional structure. That is, they carried
Asian freight for Asian markets and built ties of
dependence and cooperation with the native
merchants. However, by the third quarter
of the century, Europe was a bigger market
for Indian cotton textiles than was Asia. By
then the Dutch and the English, unlike the
Portuguese, had penetrated from the sea into
the inland areas, from where Indian textiles
and other commodities were supplied to the
traders.
Although nobles and rulers of the land
connected with the Mughal Empire or
regional states, often participated in trade, and
sometimes tried to restrain the trade carried on
by Europeans, these attempts did not pose a
serious threat to the Europeans. The Mughals
and the local nobles were powerful on land,
but weak at sea. It was this naval weakness
that allowed the Europeans to bargain and
carve out a commercial-cum-political space
for themselves in the seas. By 1750, the English
had penetrated far further into the hinterland
than the Dutch. These moves into the land
carried promises as well as hazards. There
were incidents of armed conflict between
the territorial powers and the English East
India Company. There were two perennial
sources of dispute. First, the licence to trade
without a fee or with a low feea claim often
granted by the king on a consideration but
fiercely disputed by local authorities. Second,
the problems of enforcement of contracts for

supply of manufactured goods. Europeans
could not do business without heavy reliance
upon Indian agents, merchants, bankers, and
artisans. They also did business on long-period
contracts entrusting very large sums of money
with little-known agents to be used as advance
payments. Long-period contract on such
extensive scale as the Europeans entered into
was unprecedented in the business world
of India, and consequently, such contracts
were not protected by any law whatever. In
this context, disputes over breach of contract
occurred frequently, and often involved the use
of force. These occasions sometimes invited
the local rulers to intervene, almost always
against the Europeans. When threatened
inland, the Company blockaded sea routes
for the Indian merchants, which usually led
to a compromise. The political power of the
European companies, thus, partly derived
from what the historian, Ashin Das Gupta,
called a balance of blackmail between land
and sea.
The principal commodities in trade in
the seventeenth and eighteenth century were
foodgrains such as rice, cotton textiles, horses,
and silver.
Central and West Asian horses were a
principal item of import into India from almost
prehistoric times. The horses were needed as
instruments of warfare, and were needed by
all, but especially by warlords who hailed from
Central and West Asian regions. Horses were
brought by sea and overland. The overland
route ended in the large pastures available to
the west of Delhi, from where horses were
procured by the imperial and provincial
agents. In the eighteenth century, the pattern
of warfare began to change. Increasing
importance of the artillery and infantry saw
decreasing role for the cavalry. At the same
time, the Marathas successfully developed
mobile cavalries formed of locally bred lighter
transition to colonialism 33
horses. These circumstances initiated the
beginning of the end of the horse trade.
Rice was a crop of monsoon Asia. In India,
along the coasts and in the deltas of major
rivers, rice is grown, usually in excess of
local needs. Bengal was a prominent surplus
producer. Orissa, the Godavari delta, and
the Cauvery delta, were the other supplier
regions. The monsoon never failed along the
whole belt, so that some parts always had
rice to spare for the export trade. On the west
coast, Kanara was the main surplus region.
Before the European ascent in the Indian
Ocean, rice from Tanjore and Kanara went
to Ceylon and Malabar, which had become
net importers in the eighteenth century due
to population growth; rice from Bengal and
the eastern coast went to the West Asian
ports from Masulipatnam and the emporium
ports of Southeast Asia, Malacca, Macasser,
and Aceh. As trade between South Asia and
Europe grew from the seventeenth century on,
the grain trade was stimulated. The availability
of larger and sturdier ships helped, as did the
finance and the backing of certain rulers and
nobles who took an interest in the trade. On
the demand side, trade settlements grew in
size. Warfare, and the rise of new successor
states, led to an increase in urban and military
demand. Local demand increased in regions
that were now engaged in the production
and trade of handicrafts. For example, it was
necessary for the Dutch East India Company
to maintain the smooth functioning of private
trade in rice in order to serve two large deficit
regions, Ceylon and Java, which were both
under Dutch control in the seventeenth
century.23 In the eighteenth century, the rise of
Madras town, and the economic and political
change on the eastern coast, turned the north
and mid-Coromandel from surplus production
to deficit or near deficit. Regular shipments
between Calcutta and Madras became
34 economic history of india

Box 2.2 The Portuguese Arrival

The Portuguese voyages in the fifteenth century marked the beginning of serious European interest in
Asian trade and politics. The motivations behind these early voyages remain something of a mystery. The
varied attractions included the lucrative trade in spices, Christianity and the crusading impulse, access
to food and gold in North Africa, and an accidental set of circumstances that gave the Portuguese court
access to Italian and Spanish sponsorship. Portugal was undoubtedly the home of superior navigation
skills. But it was also one of Europes poorest regions. High mortality and impoverishment of the nobility
may have made the nobles desperate to seek resources and fame outside.
The Portuguese quickly established a foothold in India, and tried to monopolize the sea route
between Europe and Asia by issuing licences to merchant marine belonging to other ethnic groups. In
short, they tried to establish a state on the waters. Seen in a long-term perspective, these attempts failed.
Partly, the Portuguese did not have enough resources for the task, and partly, they lost interest in these
manoeuvres in the western Indian Ocean as they began to expand into the eastern Indian Ocean towards
Japan and China. In the end, they were left with a small and rather impoverished colony in Goa, and
a motley collection of adventurers in Bengal. One theme of debate concerns the reason for the lack of
success of the Portuguese enterprise. In one view, the lack of success owed to the redistributive and
pre-capitalist nature of the enterprise, it lived off profits of others rather than making its own actions
profitable and driven by commercial profits, as the English and the Dutch enterprise were. In another
view, the Portuguese empire ended due to external factors, including the resistance of territorial states,
such as the Mughals, Ottoman, Japanese, and the Persian. In the time of the later European actors, some
of these territorial states had begun to weaken.
A further point of difference between these pioneers and the later merchant groups from Europe was
of significance to the making of Indian society. With the exception of the tiny nobility, the Portuguese
married Indians, and became absorbed in Indian society to a greater extent than did the others.
Interestingly, while the process was still incomplete, the mixing of blood gave rise to a social hierarchy
in the Estado da India at Goa (the English word caste has Portuguese origin). In other words, the
absorption may not have owed to a naturally weaker sense of hierarchy among the settlers, but rather
more to the pattern of early settlement. Many settlers did not wish to or have the means to return to
Portugal. In the Bengal seaboard, where the Portuguese presence consisted of isolated bands of landlords
and mercenaries, the mixing happened to such an extent as to obliterate the Portuguese identity almost
completely. The Bengal story revolves around two places, Hooghly and Sandwip. In both these places,
the Portuguese were held in suspicion by the Mughal provincial administration for their role in river
piracy. In Sandwip for a considerable length of time, the Mughal presence was not strong enough to oust
or suppress the Portuguese, while the attempt succeeded in Hooghly.

Readings: M.N. Pearson, The Portuguese in India, Cambridge: Cambridge University Press, 1987; Sanjay
Subrahmanyam, The Portuguese Empire in Asia, 15001700: A Political and Economic History, London
and New York: Longman, 1993; Sanjay Subrahmanyam, The Career and Legend of Vasco da Gama,
Cambridge: Cambridge University Press, 1997.

profitable, and many Company servants took
part in these shipments. The trade signified
a changed relationship between Madras and
its own hinterland. Until the late eighteenth
century, Madras relied on its hinterland for
its grain supplies. Now, the sea supplied grain
not only to Madras, but also, via Madras, to
the interior, especially territories held by the
Nawab of Carnatic.

Cotton goods exported to Europe came
in many grades and varieties, but these can
be classified into a few broader groups. Five
groups can be distinguished: muslins (cloths
made of fine cotton yarn), fine calicoes (cloths
made of medium-to-fine yarn), ordinary
cotton calicoes (cloths made of coarse-medium
yarn), silk cloths, and silk-cotton mixed
fabrics. The generic term calico referred to
a plain-weave cotton fabric, either bleached
or unbleached. Calico derived its name from
Calicut on the Kerala coast, from where the
first consignments of Indian textiles went to
Europe. In terms of export value, ordinary
calicoes formed the principal category,
suggesting the significance of mass consumer
demand in driving the trade. However, the
other goods played a role in defining fashion,
encouraging specific innovation and imitation
in Europe, and enabled weavers and merchants
to earn income and accumulate wealth. A part
of the calico exports consisted of chintz, that
is, painted or printed cloth. These brightly
coloured articles were valued in Europe. In the
early nineteenth century, fabrics with Indian
patterns began to be produced by British
manufacturers in the Midlands and Yorkshire,
and in France.
The four great textile export regions in
the eighteenth century were Punjab, Gujarat,
Coromandel, and Bengal. Within these
regions, the traders mainly dealt with artisans
located in the countryside. In these trading
regions, rural industry tended to cluster
around trading stations, or the trading stations
located themselves near large villages or groups
of villages. The English called their trading
stations factories. Together with stations in
the major ports such as Surat on the western
coast and Masulipatnam on the eastern, these
factories formed networks of circulation of
money, merchants, and material. Weaver
settlements changed continually according
transition to colonialism 35
to famines or political instability. European
factories sometimes had a powerful attraction
for artisans as sites that could offer them
greater security of life and livelihood. Some of
these regions possessed resources needed for
high quality textiles such as long-staple cotton,
or water believed to be good for dyeing. That
apart, these regions already had well-developed
textile production systems catering to older
trade networks. Punjab traded overland with
Central Asia and the Middle East, Gujarat had
ties with Red Sea ports, Coromandel with
Southeast Asia, and Bengal used its waterways
to trade with northern India.
The India trade at its peak involved an
exchange of goods for goods as well as bullion.
The sustainability of the trade depended on
a plentiful supply of precious metals from
Spanish America. Silver came from the
Bolivian mines into the Spanish imperial fiscal
system, were procured by western Europeans
or their agents, and shipped to India and China
to pay for cotton and silk cloth. The English
Company consistently tried to sell English
goods, such as woolens and metals, in India in
exchange for cloth. It would be too sweeping
to say that they failed in this endeavour, but
a real breakthrough in this enterprise did
not really come until the second half of the
eighteenth century. From soon after the Battle
of Plassey in 1757 until about 1785, territorial
revenues of Bengal were used to finance
exports, which obviated the need to import
silver. However, this entire period saw a fall
in Companys trade, as the greater part of the
revenues was spent on fighting wars within
India rather than on trade. A further fact that
made silver less essential in this time was the
success of imported British iron goods in the
Indian market. Not surprisingly, many of these
imports came in the form of cannons and
guns. Silver rose again from the 1780s, and did
not fall until the first decade of the nineteenth
36 economic history of india
century, when English textiles and metals
could pay for Indian goods well enough and
the trade was increasingly moving into private
hands rather than the English Company.
How important was foreign seaborne
trade for India in the eighteenth century?
Undoubtedly, the Indian Ocean trade was
crucial to the economies of Bengal, coastal
Gujarat, or Coromandel. But questions can
be raised as to how crucial maritime trade
was for the inland economies and for the
subcontinent as a whole. The most generous
estimates suggest that at the end of the
eighteenth century the proportion of export
in national income was between 1 and 2 per
cent, which was rather small. The fact that this
episode in Indian economic history is so well
researched reflects the availability of archives
rather than its scale. That being said, we
should not underestimate the significance of
Indo-European trade. Colonialism originated
in seaborne trade. Seaborne trade was also a
watershed in business history.
As the eighteenth century drew to a
close, the high roads of the Indian Ocean
had become Europe-directed, and European
shipping and traders increased their control.
With the English East India Company
assuming state power in Bengal (175765),
the landsea political cleavage began to
weaken. Native shipping and trade went into
decline, even as they reasserted themselves
in the hinterland. Historians often ask why
Indian shipowners and traders never managed
to dominate the Indo-European trade, and
never became transcontinental explorers
and voyagers in the way the Europeans did.
Surely Indian shipping was not a small-scale
enterprise. At its peak, the Gujarati merchant
marine based in Surat consisted of about one
hundred vessels of 200400 tonnes each.
Many owners of ocean-going ships were
politically powerful or protected persons.
Why the Europeans could still dominate long-
distance shipping may be explained wither by
looking at the balance of power at sea or by
business organization.
Naval superiority, based on a partnership
between the parent state and the merchant
firms, was a factor behind European success.
The fortified settlements backed by strong
fleets, which the Europeans built, not only
kept the sea routes open but also kept the
territorial powers in check, as we have seen.
By contrast, Indian seagoing merchants
were rarely backed by the states. The second
explanation concerns technology and
business organization. Although Indian
ships charged lower freight rates, European
ships were on average much bigger, sturdier,
and better defended. The larger size was
necessitated by the volume of cargo carried
as well as by the number of guns carried.
Furthermore, European trade was organized
around large joint-stock companies, whereas
Indian firms developed around families or
individuals. The stability of such a firm was
too dependent on the resources and talents
available in the family. The English Company
not only brought a number of wealthy
persons and stakeholders to work together,
but also possessed an identity independent
of persons, which gave it more stability and
power. Although the Company had an official
monopoly of commerce, in practice private
European traders, some of them former
servants of the Company, captured a bigger
share of the trade. And yet, the Company
survived as an organization. Indeed, its
military might served as an umbrella sheltering
a large number of European actors. And finally,
as consumer demand shifted towards Europe,
the Europeans began to enjoy an information
advantage over their Indian rivals.
None of these factors explains the rise of
the Company as a territorial power in India,

for the reason that the battles that eventually
left the Company in possession of an empire
were fought on land, with resources raised
from land. Explaining the outcome connects
with a global history literature that investigates
the link between military and fiscal capacity
of states. The theme is discussed more fully in
Box 2.3.
NEW PROPERTY RIGHTS IN LAND
Land and State: Recasting the
Relationship
The East India Company, upon receiving
the taxation rights of Bengal (and soon after,
territories in southern and western India), set
out to reform the land taxation system. The
property rights reforms undertaken in the
last quarter of the eighteenth century were
driven by the dual objectives of weakening
the old military elite and expanding the tax
base. What was this a change from? What did
the British think they were doing in Indian
agriculture? Economic theory of institutional
change considers secure property rights to
be a precondition for economic growth.
From this perspective it might seem that
the British undertook a wise move to define
and strengthen private property right where
rights had been insecure earlier. However,
any inference that the Company deliberately
sought to modernize a backward and
institutionally weak system would amount to a
misreading of the historical evidence.
These reforms were not undertaken
from a sense that landed property had been
insecure before. There is plenty of evidence
suggesting that the Indian rulers were keen
to protect peasant property rights. Even if
private property had been ordinarily secure
by custom, it was often entangled in joint
and multiple rights, the rights of the kin
transition to colonialism 37
group, and the rights of the tax collector.
This entanglement created two situations
that the early colonial administrators saw to
be a problem and against the interests of the
state. First, it had made an intermediary group
between the peasant and the state, namely the
tax-collecting landlord, a powerful actor in
the countryside and potentially a threat to the
state power. Second, it had made land poorly
marketable. By removing overlapping rights,
private rights would become saleable, and
land price and rent reflect the true value of the
asset. The return on land would become in
theory measurable, and therefore comparable
with other uses of capital, attracting moneyed
people to transact in land. Through market
exchange, property should pass on to the most
efficient producer and make both the state and
the owner better off. The overwhelming intent
behind land right reforms was not to give
better protection to the peasant, but to weaken
the intermediary political actors, to separate
taxation and ownership rights, and to make
land a more marketable asset.
The aim of the Company was political and
pecuniary. The desire to weaken the military
elite would mean an end to the tax-collection
rights that the groups in command of military
resources had earlier enjoyed. Tax rates were
fixed, and tax collection was now a state office.
Derecognizing tax-collection rights would also
mean that only one kind of private interest in
land could be recognized, namely, ownership.
Recognizing ownership rights was the
corollary of the political move to neutralize the
numerous land grantees. The welter-of-rights
problem was resolved by recognizing only
ownership right. The state respected property
rights as long as taxes were paid. This part of
the reforms, which effectively established the
state as the supreme landlord, derived from
what was believed to be the long established
custom of the region. In other words, tax
38 economic history of india

Box 2.3 MilitaryFiscal Objectives and State Formation in Eighteenth Century India
Historians of seventeenth and eighteenth century Europe suggest a link between frequent warfare
and military contest on the one hand, and the size and fiscal capacity of the states on the other. Their
argument is that military competition drove some of the major western European states to take
increasing control of the economic means of financing wars. The phrase, military-fiscalism, coined by
Martin Wolfe in the context of Renaissance France, is used to suggest an interdependent growth in fiscal
capacity and military capacity.
Eighteenth century India witnessed political fragmentation, military competition, and much warfare.
How did state capacity change in response to this contest? Curiously, the outcome here was a highly
uneven one. The end result was not, as one might expect, a cluster of competing states growing more
powerful both as governments and as armies. Rather the outcome was that one contestant overwhelmed
all the others. The strongest among the Indian states shrank in size and capacity in the course of fighting
battles. Why was the outcome of military-fiscal contests so one-sided in India?
Historians have tried to explain why the Company succeeded militarily. The explanations include
such factors as disunity among the Indian princes, the collaboration between Indian merchants and
European merchants, the backing of home country to the Companys imperialist designs in India, and
technological superiority of the Europeans in the battlefield. None of these factors explains the outcome
well enough. At their peak strength, the principal rivals of the Company were united enough; disunity
was a symptom of their growing weakness. Indian merchants and European merchants collaborated at
times, and quarreled and distrusted each other at other times. The Parliament and the Crown tried to
stop the Company from building an empire. When the decisive battles were fought the Indians were
technologically equal to the Europeans, partly because they routinely hired the French, the Dutch, and
even a few renegade Britons, as mercenaries.
Does fiscal strength or weakness answer the question then? It is indeed true that the Company could
raise more funds. Being merchants, they commanded better credit in India. Their early successes in
Bengal and Awadh gave them access to the treasury of two regions that yielded four times more land
revenue per acre than the dry-land states such as the Marathas and Mysore. Being in control of three
ports, the Company could open up supply routes by sea. But it was not luck alone that brought them
success. The Company used money to raise a standing army, whereas the princes relied upon irregulars
and soldiers contributed by supposedly loyal chiefs. This factor introduced differential capacity to
command armies, and differential incentives for the soldiers. The Company soldiers who hoped to earn
a pension if retired or injured fought better than did the irregulars. In short, a specifically European
strategic outlook did work behind the success of the Company.

Readings: Brian Downing, The Military Revolution and Political Change in Early Modern Europe,
Princeton: Princeton University Press, 1991. The term military-fiscal is employed loosely in discussions
on state formation in India, see P.J. Marshall (ed.), Eighteenth Century in Indian History: Evolution or
Revolution?, New Delhi: Oxford University Press, 2003, pp. 130; Seema Alavi (ed.), Eighteenth Century
in India, New Delhi: Oxford University Press, 2002, pp. 156. The interpretation offered here is fully
developed in Tirthankar Roy, Rethinking the Origins of British India: State Formation and Military-
Fiscal Undertakings in an Eighteenth Century World Region, Working Paper, Economic History,
London School of Economics and Political Science, can be downloaded from http://www2.lse.ac.uk/
economicHistory/workingPapers/economicHistory/home.aspx.

defaulters now risked losing their property
rights if taxes were unpaid.
Whatever the doctrinal roots, the regime
needed to adapt to the local conditions and
make alliances with the classes that were
formerly powerful in order to implement
the new rights. The general policy was
implemented in three different ways. In
Eastern India, the zamindari system gave
property rights to the zamindars. The
peasantry became tenants of these proprietors.
In southern and western India, the ryotwari
settlement gave property rights to the peasants.
In the western Gangetic plains, property
rights accrued to dominant kinship lineages
in the village. Under the zamindari tenure or
Permanent Settlement, property rights were
granted in exchange for revenue that was fixed
in perpetuity. Under the other arrangements,
property rights were granted in exchange
for revenue that was subject to revision,
approximately every thirty years.
Zamindari
After the Company took control of Bengal,
revenue farming continued out of necessity,
with the change that auctions became more
open and the terms of the lease shorter. As
usual with revenue farming, such a course
diluted the composition of zamindars.
Moreover, the highest prices at the auction
were frequently too high relative to the areas
ability to pay. The right-holders in that case
either defaulted, or tried to collect exorbitant
rents from their tenants, who in turn fled
from their land. Revenue farming, therefore,
was both unpopular and inefficient. After
this experience, the Company turned back
to the old zamindars and tried to settle with
them directly. The Permanent Settlement
was the final result of this process. It gave the
zamindars ownership and security provided
transition to colonialism 39
they paid their tax. In effect, the zamindars
were also allowed to continue as mini-states in
their own domain.
The zamindars who received ownership
rights included a mixed class of people who
had been landlords during the pre-British
periods, as well as some who had acquired
control over large estates through revenue
farming. The decision to make a pact with
them was partly driven by path dependence
of some sort. The zamindars were far too
powerful in this region and knew the rural
world better than the Company administrators
in 1765. Further, years of revenue farming had
weakened the local offices such as patwaris and
amils, so that the British did not have direct
access to local information anyway. But partly,
it was a case of mistaken identity. The British
wrongly thought that the zamindars were like
the landlords in Britain, that is, a superior
cultivator. The Permanent Settlement was
extended in the 1800s to coastal Madras and
north-western provinces (eastern UP). It is
noteworthy that usually zamindari areas were
highly fertile ones that created enough rent to
support a landlordtenantlabourer hierarchy.
In some parts of zamindari this condition was
weak, defaults excessive, and these were later
changed to different forms of settlement.
The first 15 years of the Permanent
Settlement saw a burst of auctions of
zamindari estates in greater Bengal, induced
by sharply raised effective revenue collection,
a series of minor or large agrarian crises, and
the proverbial incompetence of zamindars in
managing their estates.24 Many among these
groups were not cultivators themselves, and
were unable to meet the increased demands by
improving cultivation practices. The distress
sales declined thereafter, as the rental value of
land exceeded the revenue burden that had
been fixed in money terms. The auction sales
tended to break up large estates into smaller
40 economic history of india
lots. The peasants mockingly called these new
people lotdars.
The zamindari settlement turned the
peasantry into the zamindars tenants, liable
for rent payment. The principal problem
with the position of the tenants in the early
years was that the government left open the
question of whether or not the zamindar could
raise rent. It was believed that the zamindars,
grateful for the benefits secured to them,
would in turn foster their tenants.25 What
happened in practice was that the zamindars,
while leaving formal rent rates untouched
in many cases, imposed taxes and levies of
various kinds. And in this game, the dominant
and large tenants were often bribed into
collusion or a silent acceptance, so that the
weaker tenants had no option but to pay up.
After a period of inactivity, the government
of the East India Company fixed the rents
charged by the zamindars to their tenants,
usually the occupancy tenants or khudkashts
who had been cultivators of a plot of land
for a number of generations. Complaints
about zamindar exploitation of cultivators
continued, however. A series of tenancy acts
(18591928) recognized and strengthened
the occupancy rights of tenants settled in a
land for many generations. Elsewhere too,
tenancy protection was a general trend in the
second half of the nineteenth century. Tenancy
regulation encouraged a rental market, and led
to a proliferation of subleases. Superior right-
holders could hope to make money by leasing
out land to inferior right-holders (see also
Chapter 4 on tenancy).
There is disagreement over what these
tendencies meant to class power in rural
Bengal. Ratnalekha Ray proposed that some
members of these dominant cultivating groups
in possession of superior tenancy rights, called
jotedars and occasionally by other names, were
locally very powerful. Taking advantage of the
zamindars own distance from land and the
unstable economic conditions, these wealthier
peasants with superior tenancy rights extended
their land holdings, so much so that they put
limits on the zamindars ability to take closer
hold of actual cultivation. Early administrative
writings on the Permanent Settlement hint
that these groups often needed to be pacified
and co-opted in order for any attempt by the
zamindar to raise rent to succeed at all. The
argument led Ray to conclude that the new
property rights over land long regarded as
the propelling force behind a revolution in
Bengali rural society, would appear to have
effected a less fundamental change than is
usually supposed.26 Often referred to as the
jotedar thesis, the idea of a dominant group
capable of providing collective resistance to
expropriation and exploitation by superior
right-holders leaves the prehistory and the
post-history of the dominant groups open to
questions, even speculations. We get a rather
different picture of the Bengal peasantry from
a later work on late eighteenth century Bengal.
Rajat Datta considers that except in a few
districts, the small peasant dominated Bengal
agriculture.27 Datta frames his narrative within
a picture of increasing vulnerability. The
peasants became more dependent on creditors
as they became more dependent on buying
and selling in volatile markets, and the market
power of merchants and bankers increased.
The famine of 1770 intensified these relations
of dependence rather than reducing them,
as shortages of cultivators and labourers
developed.
Ryotwari
In 1790, the Company in Bengal was not
secure enough to think of a reform without the
cooperation of the elite. When territories in
the rest of India fell into its hands in the early

nineteenth century, property right reforms
were done in a state of greater information
and confidence and the middle-tier had
already become weak. Therefore, it was
easier to consider peasant proprietorship in
these regions. The type of settlement where
cultivators individually received proprietorship
was known as ryotwari. In Southern and
Western India, the ryotwari settlement was
adopted. By the time ryotwari was established
(180020), the mind of the major reformers
had turned against zamindari from a sense that
the zamindars were really more middlemen than
cultivators (see also Box 2.4 on the ideological
foundations of ryotwari). Ryotwari was, in
principle, a direct contract between the ryot,
or the cultivator, and the state. It meant a tax
contract that remained valid for a period of
time, usually 30 years, and was renegotiated
thereafter. In principle, ryotwari weakened the
former elite, and strengthened the peasantry.
However, the ryot in question differed in
character between regions. One particular
variation of this principle occurred in parts of
northern India, where joint peasant rights were
strengthened.
In western India where the Company took
over from the Maratha bureaucracy, the first
impulse was continuity rather than reform, so
as not to upset revenue collection. But in the
long run, change did come. The practice was to
settle with dominant cultivating groups. In the
upper Doab and Rohilkhand, talukdars were
suppressed and the village republics were
recognized as the proprietary body. The joint
landlords of village lands were collectively
responsible for the revenue. Therefore, joint
rights cemented by clan or kinship were
possible. The early years of over-assessment,
however, made these rights unattractive, and
they were practically unmarketable. The 1830s
saw the first assessments of the individual
shares in village lands. As these shares were
transition to colonialism 41
defined, they became marketable, and began to
come into the market in large quantities.
By and large in southern and western India,
mirasdars were granted proprietary rights. The
mirasdars were technically holders of shares in
village land, so this system and joint-landlord
assessment could become in many cases
indistinct. The political prelude to this system
in the south was the suppression of poligars
in 17991800. These were a body of tributary
kings or chieftains peculiar to south India. A
few of them became zamindars under British
rule. Early British rule continued with an old
practice of assessments over the entire village.
The cultivators were expected to allocate the
revenue among them. Gradually, individual
shares and assessments on them came to be
measured. The shares were called pattas. This
process enabled easier sale of such rights.
Tolerable rates of revenue generally came in
the 1830s and 1840s, after new assessments.
The 1835 Bombay Survey is an example. It set
a model that was followed in Mysore 30 years
later.
Ryotwari should, in principle, eliminate the
need for any intermediary between the state
and the peasantry. As we have seen, offices
of the state were important in the villages in
western and southern India before British rule.
These offices were sometimes occupied by
mirasis, as in southern India, and sometimes
by stipend or salary earning employees of
the state, as in the west. Did these offices
actually decline after ryotwari? Scholars agree
that initially there was an attempt to destroy
or reduce the offices. The move in some
cases impaired the cohesion and internal
management of the village. It also seems that
the British realized in some areas that it would
be wise to go slow on this course. In the long
run, there could be one of three outcomes: a
permanent weakening of office holders in the
rural economy, their evolution into substantial
42 economic history of india
cultivators, and a more mixed situation where
a few among the office holders could evolve
as substantial cultivators. Western India was
an example of the first situation. The ryotwari
of south-eastern coast, and partly the Tamil
country, were examples of the second. In some
areas of western India, the third situation
prevailed. In all cases, where old officers
benefited or survived, the instrument or
privilege that helped them to do so was inam
land. Inam was substantial in certain parts of
the south, mainly in Andhra, both southern
and coastal. It is a puzzle that such extent of
revenue discount was permitted when there
was every attempt to wrest from the village as
much as the regime possibly could. An implicit
policy to spare the old notables was possibly at
work.
Elsewhere in the Companys Territory
and the Princely States
The general types of settlementa contract
with prominent individuals, with joint
landlords, or with shareholders in coparcenary
communities for the delivery of tax against
legally recognized titles to landreappear
with minor variations in other regions of India
including the princely states. The choice of
the proprietary body was mainly influenced
by local conditions. In the areas of Gujarat
formerly under Maratha rule, settlements were
entered with warrior chiefs called talukdars
(around Ahmedabad), with shareholders
called patidars (Kheda district), and with
individual cultivators (Broach). Pre-British
Kerala had a system of tenancy where upper-
caste non-cultivating landlords rented out land
to a hierarchy of tenants with different degrees
of occupancy rights and under different forms
of customary contract. The Company in
Malabar readily granted proprietary rights to
the landlords. This move opened up a breach
between the land and the actual cultivators,
that is, the layers of tenants. The breach
widened in the course of the nineteenth
century.
In Hyderabad until the 1850s over half the
territory consisted of land held by the king. In
the remaining ryotwari land, revenue farming
and its abuses were pervasive until reforms
were initiated during the ministership of
Salar Jang I. In Mysore, the British intervened
in the land system in 1831, and settled on
a ryotwari model in the 1860s. Between
the end of Tipu Sultans regime and British
takeover, the state was under a combination
of ryotwari and revenue farming, which
eventually impoverished the state. Mysore
and Hyderabad emerged among the states as
two contrasting situations. In the latter, land
ownership was vested in large landlords or
jagirdars, whereas the former had one of the
highest proportions of ownercultivators in
the South Asia region.
In Awadh, the former revenue collectors or
zamindars became proprietors of land in legal
terms. But they lost various perquisites and
status claims that arose from their service in the
local courts. Many members of their extended
families claimed rights to the land, a factor that
led to the subdivision of these estates. On the
other hand, customary tenants found that their
claim to tenure had become legally weaker.
Both these problems defied an easy solution.
In Sind, the common tenure consisted of
zamindars at British takeover, the zamindari
right being defined variably from ownership
to tax-collection right. In some places the
zamindars were cultivators, but in most
cases the cultivators were a group of tenants.
The first revenue settlements strengthened
the zamindars proprietary rights but were
notoriously harsh on them with regard to the
revenue rate, because taxation was imposed
on whole estates rather than on the cultivated
 transition to colonialism 43

Box 2.4 Classical Economics and Indian Land Administration

In 1818, James Mill (17731836), utilitarian philosopher and economist, received an appointment
with the Board of Control of the East India Company. Mill had already established his reputation as the
author of the History of British India (1817). In the same year, David Ricardo (17721823) had published
his Principles of Political Economy. Mill knew Ricardo well, and endorsed his theory of rent. The theory
stated that rent arose due to scarcity of land relative to labour. As population growth drove expansion in
cultivation into less fertile land, landowners captured the difference in fertility between the better and
worse quality land as rent. The theory implied that rent was an unearned income that could be taxed
without affecting production. A land-tax, Ricardo wrote, levied in proportion to the rent of land, and
varying with every variation of rent, is in effect a tax on rent. The theory also implied that tax should be
levied on the net produce of land, which was the amount to be obtained from land solely attributable to
fertility rather than capital and labour.
Mill was influential behind the acceptance of this theory as the basis for revenue settlements in the
newly acquired territory in western India. The task of implementing it fell on Robert Pringle, an award-
winning student at the Haileybury College, which trained officers of the Company. Pringles task was to
create a tax on the net produce rather than one on the gross produce, which was the principle followed
by earlier regimes, and to determine what the net produce on different kinds of land were. Pringle fixed
the tax at 55 per cent of net produce, and carried out an extensive exercise classifying soil and cost of
cultivation. Massive information problems rendered the entire exercise a failure and a disaster for the
peasants.
Towards the middle of the 1840s, a new assessment was under way. The architects of the new system
were George Wingate, an engineer with the Company, and H.E. Goldsmid, a revenue officer. They were
as doctrinaire as Pringle on the relevance of Ricardo and Mill, but created a more detailed information
system on the relative fertility of plots of land, and combined it with climate and market access. In each
village, cultivable and wastelands were measured. Each plot was demarcated. Soil quality was fixed by
using a scale that contained nine classes. For an example, class 7 consisted of black soil 1/4th cubit
deep, red soil cubit deep, and grey soil 3/4th cubit deep. The whole exercise measured only relative
capabilities of land, and not the absolute fertility or the true rents. If the rent on any one plot was known,
rent on all the others could be estimated using the new information. But how was the actual rent on
any one plot of land to be determined? Wingate and Goldsmid ingeniously argued that the historically
established rent should be the benchmark for the absolute level, provided it had allowed cultivation to
expand. For that would be a sign that the tax was less than the true economic rent.
The first 20-odd years of ryotwari saw an agrarian depression. From early in the second half of the
nineteenth century, conditions improved. But whether the reversal was due to the effects of rising prices
and expanding world market, or the success of the WingateGoldsmid settlement, it is difficult to say.
In any case, dominant peasants could influence the outcome of any survey, and path dependence was
respected by the rule that true rent should follow precedence.

Readings: M.B. McAlpin, Economic Policy and the True Believer: The Use of Ricardian Rent Theory
in the Bombay Presidency, JEH, 44(2), 1984, pp. 4217; Ira Klein, Utilitarianism and Agrarian Progress
in Western India, EHR, 18(3), 1965, pp. 57697; Neeraj Hatekar, Pringles Ricardian Experiment in the
Nineteenth Century Deccan Countryside, Indian Economic and Social History Review (IESHR), 33(4),
1996, pp. 43757.
44 economic history of india

area. In 1875, a more lenient system was
adopted.
In the Central Provinces, the intention was
to introduce a village settlement system. But
eventually, property rights were granted to the
malguzars, a kind of village headman who
had tax-collection powers that were respected,
indeed strengthened, during the period of
Maratha rule in the region. In Konkan, another
group of de facto headmen, called khots,
acquired proprietary rights. In both cases, these
headmen were usually the dominant cultivators.
In Assam, with the exception of a small area
under Permanent Settlement, the usual system
was ryotwari (see Map 2.1 on the final pattern of
settlements).

75 90

AFGHANISTAN

T I B E T

Lahore Simla
30 30

Delhi
IA
S

N E PA L
R
E

BHUTAN
P

Karachi

Calcutta
BU R M A
ges
Gan
f the
ths o
Mou

Bay
Bombay
of
Bengal

Hyderabad

15 15
A ra b i a n
Sea
Indian Ocean
Madras

Pondicherry Permanent
(French)
Ryotwari
ait
Str
Cochin Palk
Others
Gulf
of
Mannar 0 200 400 Kilometers
CEYLON
0 200 400 Miles

75 90

Map 2.1 Types of settlements, 1858


Consequences of Institutional Reforms:
Tax, Tenancy, Land Markets
It is believed that the first round of settlements
in Bombay and Madras set taxes too high,
causing peasant distress and an agrarian
depression. The idea of an agrarian depression
sometime in the second quarter of the
nineteenth century has been articulated in
regional histories on the BombayDeccan
and Madras.28 The evidence available to
test the hypothesis at present is the trend in
agricultural prices. Food price as a proxy for
standard of living could be misleading in the
second quarter of the nineteenth century,
when cloth prices had also begun to fall. The
depth of the crisis, therefore, remains testable.
Later rounds of settlements in the 1840s
moderated the tax burden considerably.
Many elements of custom were suppressed.
Chief among these was the authority of
the local officials to punish the defaulting
tax collector or peasant. Suppression of
this right made it possible for land to
change hands faster and more easily when
defaults occurred. The Company made
public sale of ownership mandatory when
tax defaults occurred. Further, recognition
of ownership rights meant devaluation of
customary tenancy rights. Recognition of
peasants rights implied derecognition of
the customary rights of the pastoralists.
Legal recognition of the village commons
encouraged enclosures and disempowerment
of the community and customary law.
Underlying these changes there was often
implicated three types of discrepancy. The
first one occurred between custom and the
understanding of custom, the second between
custom and a new vocabulary of rights,29
and the third discrepancy arose between legal
theory and practice.30 Most cases of outright
disempowerment, as in the case of customary
transition to colonialism 45
tenants, were examples of the second of
these discrepancies. The commons problem
involved the first type of discrepancy.
In deciding who gained and who lost
through this process, we need to note first of
all that the answer varied by region because
the precise mix between colonial ideology and
practice varied too. In zamindari areas the older
elite, on the whole, gained. But some of this
gain faded away as the nineteenth century wore
on, and groups of rich farmers consolidated
their economic power by participating in the
market, something the zamindars never could
do. Elsewhere, members of the older elite, that
is, groups with access to land but unwilling
or unable to cultivate it, were more likely to
sell their way out of the village, as part of a
larger strategy to shift from landed to literate
service occupations. At the same time, groups
more likely to buy land were cultivators and
labourers. A member of a cultivating group was
usually keen to buy land to strengthen peasant
status, and in the case of labourers, to buy his or
her way into peasanthood.
Property rights reforms stimulated land
market transactions in nineteenth century
rural India. There is little direct evidence on
just how often land ownership rights changed
hands. As we have seen, there is evidence
to suggest that soon after the Permanent
Settlement, zamindari titles changed hands
quickly. In ryotwari areas, land transfers did
increase somewhat, as evidenced by the
activation of land mortgages. However, if
transfers increased, the extent of transfer was
not very significant, as data collected for a later
period show (see Chapter 4).
The zamindari and ryotwari areas
differed in the pattern of their subsequent
development. One determinant was
investment. In zamindari areas, the
government left the responsibility for making
investments to the zamindars. In the ryotwari
46 economic history of india
areas, the government implicitly assumed the
responsibility. Perhaps there was an element
of calculation too behind this decision. Taxes
being fixed forever in the zamindari areas, the
government could not hope to recover returns
to investment in the form of taxes. In ryotwari,
the road remained open. This was one of the
reasons, but perhaps not the only one, why
irrigation development occurred to a greater
extent in the ryotwari areas.31 Further, revenue
farming had already weakened the official
information-gathering system in the villages
on the eve of the Permanent Settlement.
Consequently, zamindari areas continued for
long to remain statistical black holes.
In agriculture, the main form of change was
an institutional one. In the non-agricultural
occupations, the change came from markets.
The next two sections deal with the non-
agricultural livelihoods.
FOREIGN TRADE
At the close of the Napoleonic wars, the
market for Indian textiles had shrunk owing
to tariffs on Indian goods in England, which
were steeply raised between 1797 and 1814.
Almost simultaneously, technological change
in weaving, most decisively Horrocks power
loom, reduced the difference in cost of
production. The Companys commercial
monopoly in India ended with the Charter
Act of 1813 (the monopoly in China trade
continued until 1833). Already the Company
had become a territorial power living on land
revenue, and trade had shifted to private hands.
Many former employees and other individuals
had established partnerships with Indians to
carry on export of cotton, indigo, opium, and
sugar. Profits of these trades sustained new
commercial-cum-port towns such as Calcutta,
Bombay, and Madras, helped some Indian
groups accumulate capital that later found
its way into industrial ventures, and built
close trading links between India and China,
which was a market for Indian opium sold in
exchange of Chinese tea.
The integration of Indian trade with world
trade speeded up from 1800, to which the rapid
growth in export and import between 1800 and
1850, and almost explosive growth from 1850
to the beginning of the World War I, testify. The
pattern of trade changed dramatically in the
course of the nineteenth century. Four features
of this commercialization stand out.
First, the importance of foreign trade in the
regional economy increased. An approximate
measure of the importance is the ratio of
trade to national income. The average annual
growth rate of trade was 45 per cent during
18341913. The rate at which national income
at current prices was growing over 18681913
was about 1.5 per cent. Although we have no
hard data on incomes for 183468, it is unlikely
that the rate of growth exceeded the above rate
in that period. It follows that the ratio of trade
to income was rising for much of the nineteenth
century. We also need to remember that growth
rates in trade did not decline as the scale of
trade expanded. In other words, compared to
any two years in the early nineteenth century,
the same annual growth rate of 4 per cent in
the late nineteenth meant a considerably larger
volume of transactions.
Second, while India had dominated world
textile trade in the eighteenth century and
lost this position in the nineteenth, the overall
scale of trade showed no decline, but possibly
acceleration. The dramatic fall in Indias share in
world trade reflected a huge rise in trade in the
rest of the world, rather than an absolute decline
in trade originating in India (Table 2.1).
Third, the composition of trade changed.
Textiles (in export) and bullion (in import)
 transition to colonialism 47

Table 2.1 Scale of Foreign Trade, 18131913 (excluding treasure)

Value of Trade (m Rs) Share of Trade in National Income (%)
Import Export
Bengal
18131 16 46
18392 57 120
India
1835 48 111 1.1 to 2.43
1857 153 275 3.6 to 4.83
1913 1913 2490 >203
Average Annual Growth Rate (per cent)
Import Export
Bengal
1813271 6.5 2.4
1828392 1.1 1.9
India
1835574 6.3 4.9
18581913 5.0 4.5
185819135 5.0 5.3
(excluding 1866)

Source: K.N. Chaudhuri, Foreign Trade and Balance of Payments, in CEHI 2, Tables 10.410.7; C.S. Sivasubramonian,
Revised Estimates of the National Income of India, 19001901 to 194647, IESHR, 34(2), 1997, pp. 11368.
Notes:
1. Figures available in Sicca, Madras and Bombay rupees.
2. Figures converted into Companys rupees.
3. These percentages are based on the assumption that national income at current prices grew within a range 0.5 to 1.5
per cent per year (compound) between the pairs of dates, in turn, assuming that in the early nineteenth century real
National Income did not grow faster than the 0.9 per cent observed for the early twentieth century, and that there
was no secular increase in prices in the early nineteenth century.
4. Although the data series begins from 1834, the first year is excluded because it was a year of unusually low level of
trade.
5. 1866 was again an outlier, and the last row recalculates the growth rates excluding that year.

had dominated the eighteenth century trade.
Between 1800 and 1850, the pattern changed.
Bullion was not needed to pay for Indian
goods as the Company could now use its land
revenue for the purpose. That change did
not stop bullion imports, for the demand for
precious metals was still buoyant. But it did
reduce the scale of imports. Export of cotton
cloth dropped sharply after 1800, and import
of machine-made cloth and yarn expanded.
Textiles began to be replaced by new exportable
articles such as indigo, opium, silk, tobacco,
and cotton, and to a more limited extent salt,
sugar, and saltpetre. The area that benefited
most from this shift was the larger region served
by the network of transportation and trade
along the Ganges river. The source regions for
Indian exports shifted from the littoral to the
agrarian tracts in the interior. Elsewhere, the
commercialization was considerably weaker.
In 1811, the principal export from India was
cloth (33 per cent of export value). Next in
48 economic history of india
importance were opium (23.8 per cent), indigo
(18.5 per cent), raw silk (8.3 per cent), raw
cotton (4.9 per cent), and sugar (1.5 per cent).
In the first half of the nineteenth century, the
share of cloth had been falling and the share
of other goods rising. By 1850, this trend
was stronger. The five major exports in that
year were opium (30.1 per cent of value), raw
cotton (19.1 per cent), indigo (10.9 per cent),
sugar (10 per cent), and foodgrains (4.1 per
cent). From the 1850s, composition of export
changed further. Indigo and opium were
replaced by cotton, jute, tea and leather. The
composition of import was simpler. Textiles
and metals accounted for nearly 60 per cent of
the import value in 1850. This pattern changed
again from the 1870s in that the importance
of textiles declined in favour of machinery and
intermediate goods.
Fourth, the nature of trade fluctuations
changed. Eighteenth century trade was
notorious for fluctuations, a feature that
derived from weaknesses in infrastructure
and information. Partly in response to these
problems, the bulk of the trade took place on
consignments rather than on order. That is,
a certain quantity of goods was bought, kept
in an inventory, and sold in the final market
at whatever price it fetched, from whichever
buyer it could attract. Usually, goods in
consignment trade were auctioned. Naturally,
price fluctuations were large, and the trade
suffered from what economists call adverse
selection, the problem that speculative profits
tended to attract risk-takers. This feature
continued in the 180050 period. The two
crashes in Calcutta, in 183033 and 1847,
both led to violent declines in export prices
each lasting several years. From the latter half
of the century, consignment trade and auctions
slowly faded away in favour of contractual
deals as information and infrastructure
improved.
Main Articles of Export: Indigo and
Opium32
Among the new exports, indigo was a dye
used in cotton textiles. The world trade in
indigo began to rise after the establishment
of a machine textile industry in England. At
first, supplies came from the West Indies.
But this source became uncertain during the
Napoleonic wars. Since Bengal had conditions
suitable for its cultivation, Bengal seemed a
better option. European capitalists engaged
in textile trade found in indigo a new and
profitable investment. European firms based
in Calcutta who supplied capital and handled
marketing and shipment of indigo were known
as agency houses. Cultivation and trade in
indigo expanded rapidly until the 1850s, if in
a highly unstable fashion. The cultivation of
indigo in Bengal is a long-remembered example
of the problems of the dadni (advance) system.
The planters made advances of money that
specified the extent of land to be sown with
indigo, but left prices and quantities of leaves
to be delivered fixed by tradition. The contract
saved on information, and was as profitable to
the peasants as any other business, as long as
relative prices between competing crops did
not change. In the 1850s, however, the price of
rice increased much faster than indigo, and in
185960, the peasants turned unwilling to sow
indigo. Since many of the same peasants had
already taken advances, the planters took the
contracts to the civil and police courts seeking
punishments for the defaulters. The resultant
chaos, known as the blue mutiny, invited the
government as an arbiter. The administration
refused to bail out the planters, but sought to
create a new contract law instead.33
Opium had been grown and consumed
in India for long. It was a lucrative article
of long-distance trade, being well known in
Europe and in Asia as an anesthetic agent,

as a prophylactic against malaria, and as an
intoxicant. The three main sites of cultivation
were Benares, Bihar, and a wide expanse
of western India. Bihar was long known to
possess the best conditions for growing opium.
The western Indian opium came to be known
in the eighteenth century by the generic name
Malwa. Our knowledge is limited on how
opium was marketed before Company rule
began in Bihar. There is a casual mention in
the Opium Commission evidences on an
attempted state monopoly in Mughal India.
It remains unclear if the East India Company
actually inherited a system of regulated trade
or not. It is clear, however, that the private
traders and Company officers were aware of
the huge potential market for the product, and
the administration was keen to control the
trade in order to capture more revenue from it.
In the last third of the eighteenth century,
European merchants on the southern China
coast, who had seen the popularity of opium
shops in the coastal towns, tried to take
command over an existing but only loosely
organized trade in opium. Threatened by
the agents of the state in the harbours of
Whampoa and Macau, the opium traders
withdrew to Canton. Ships plied between
Calcutta and Canton. The strongest ships were
devoted to opium transportation, partly to deal
with pirates. Opium was exchanged for silver,
which made it a coveted and highly liquid form
of merchandise for predators. The foreign-
owned opium runners delivered the goods to
armed vessels waiting in the harbours; many of
these were also foreign owned. These floating
depots of opium sold some of the goods
locally, and delivered the bulk to Chinese junks
that journeyed up the rivers to sell retail to
opium shops and agents conducting overland
trade.
The trade had been regulated in China,
and made illegal in 1796. However, a weak
transition to colonialism 49
Chinese state found itself powerless to
suppress it. In the trading towns, the business
employed thousands of local labourers and a
large capital. In 1843 a single merchant firm in
Canton dealing in opium employed 50 vessels.
Such scale of business was not exceptional
in Canton. There was also partnership
and sharing of capital between Chinese
and European capitalists. The Chinese
warships were not confident of bombing the
floating depots for fear of retaliation. As the
consumption of opium filtered down from the
aristocracy to the literati, officers, merchants,
shopkeepers, students, and further to the
working classes, the trade found many local
protectors. Thus, a vast semi-legal commercial
network came into existence on the coasts.
Opium shops multiplied in the maritime
towns, under the eyes of the authorities.
The tension between the state and
the foreign merchants was building up. It
broke out in the Opium War of 183940,
when large quantities of opium were seized
and destroyed by the authorities, inviting
retaliatory strikes by the Companys navy.
The war ended with the Treaty of Nanking
(1842), which established the principle of
treaty ports. Under the terms of the treaty,
foreign traders would enjoy concessions and
immunity from local law. The treaty also
led to the transfer of Hong Kong to Britain,
which provided a more secure site to carry
out the trade from. The Opium War has been
seen alternatively as a contest for regulatory
power between European merchants and the
Chinese state, opium being the immediate
provocation, and as a reflection of the states
growing concern for what appeared to be
a social and humanitarian crisis. The latter
aspect drew considerable attention from the
European and American missionaries working
in China. Some of the more graphic eyewitness
accounts of the debauchery wrought by
50 economic history of india
greedy capitalists are available in missionary
accounts. The subsequent campaign against
the trade greatly stimulated a quasi-medical
interest in addiction. Much was made by this
literature about the debilitating effects of
opium. The truth perhaps was that even as the
taste for opium spread in China, the degree of
dangerous levels of addiction remained quite
small in scale. In all probability, alcohol abuse
in industrializing Europe (read Emile Zolas
LAssomoir) was a worse social problem than
opium in China.
Opium cemented and stabilized the
British Empire in a number of ways. Between
1780 and 1833 the East India Company, and
thereafter private traders, invested on average
more than a million pound sterling each year
in buying tea in Canton. At first paid for with
silver, the tea could be purchased from the
proceeds of opium after 1800. The resultant
international exchange of stimulantstea for
opiumcontributed to the balancing of trades
of three countries, India, Britain, and China.
The ships conducting the BengalChina trade
were mainly owned by British merchants
of Calcutta, and the Parsis of Bombay and
Calcutta. Marwari merchants were involved in
the inland trade in Malwa opium. Merchants
of Hong Kong had a stake in the trade. In this
way, the Empire consolidated Asian capital,
who in turn contributed to other forms
of enterprise. The house of the Tatas, for
example, accumulated capital in opium before
moving into cotton mills and later steel. The
commercial fortunes of Bombay, Calcutta,
Canton, and Hong Kong became connected
and rested on a shared dependence on opium.
Opium profits shored up government income,
and via the exchequer, flowed back into canals
and railway construction in India. And finally,
as one contributor to the opium scholarship
speculates, the specie inflow into India from
the 1830s ended the recession induced by a
shortage of silver and high ryotwari taxes.34
Within India, the Company devised a
monopoly procurement of opium by means
of granting the licence to cultivate and trade
to contractors. But it never quite trusted the
contractors to give either the Company or the
peasants a fair deal, and between 1775 and
1797, a state monopsony was established.
First, the contract system was abandoned
in favour of a statepeasant contract, and
progressively, the infrastructure necessary
for regulation of production and quality was
set up. The volume of Bengal production,
which came from Bihar and Benares mainly,
expanded rapidly. Between 1833 and 1850,
export of Bengal opium to China doubled.
By the 1830s, when Malwa opium joined the
Bengal export to China, the worlds largest
government-sponsored drug trafficking
business was working on at full steam.
Although in theory a statepeasant
contract, in effect, the contract was mediated
by many hired officers and local bosses. In
Bengal, the government advanced money
to the cultivators and contracted cultivation
with them at fixed prices. The contract was
implemented by four layers of agentsthe
European collector, the gomashtas, or under-
agentswho were literate upper-caste men
engaged by the government agent, richer
peasants and landlords, and village headmen.
The Bengal produce taken from the cultivators
was purified in state factories in Ghazipur and
Patna, and sold at auction to export merchants,
after retaining a small portion for distribution
in India by licenced vendors. With such
pressure to bear upon the poor peasants, not
surprisingly, the decision to grow opium was
hardly a voluntary one. The multiple layers of
authority took their cuts more or less from the
income of the peasant. The peasants, in turn,
tried to adulterate the finished product when
they could, with sugar, molasses, cow dung,

and opium seeds. Such practices, which could
potentially cause problems at the final market,
called for even greater vigilance on behalf of
the agents.
In the case of Malwa, where the opium
tracts fell in the states of Baroda and Indore,
opium was freely grown and sold in markets.
Malwa opium fetched higher prices in China
on account of two of its qualities. First, it was
purer. Private enterprise created the incentive
and mechanisms to maintain quality. Equally,
the fixed-price regime in Bengal and slack
officers encouraged peasants to adulterate the
product. Second, the Malwa opium was made
into cakes whereas the Bengal one was made
into tennis-ball shapes carried in chests. This
attribute made the Malwa product easier to
smuggle into China. The profitability of the
Malwa product, therefore, was higher, so that
opium made more money for the Bombay
merchants than for the Calcutta ones despite
the higher volume of trade in the east.
The trade and production were maintained
thanks to the massive amounts of money that
it made for the state, and for the merchants,
shippers, and smugglers engaged in its
distribution. Opium, therefore, received
support from the number of powerful
stakeholders; the government interested in
revenue and stable balance of trade, merchant
capitals in India and China, even the peasants
themselves (see also Chapter 4).
Interestingly, opium never turned into an
article of mass consumption in India, despite
the easy access and low cost of the substance.
In the early nineteenth century, opium was
well known among wealthy north Indian
Muslims, nobles of Rajputana, the Sikhs of
Punjab, and had widespread medicinal use.
Even if among the hard-working class of
Indians and Burmans, such as coolies and
porters, the proportion of consumers to
non-consumers is about equal, opium was
transition to colonialism 51
rarely found in the cities and among the urban
middle class.35 The difference between India
and China is quite striking in this respect,
and is possibly accounted for by the fact
that, whereas in China, consumption took
place in public places inside opium shops, in
India consumption, in general, was a more
private affair, and consequently influenced
by community and family traditions. Opium
dens, therefore, never became popular in India.
A further factor was the availability of cheaper
and more socialized alternatives, such as bhang.
After indigo and opium, a third agricultural
produce that emerged as a major exportable
product, was raw cotton. Descriptions of
the Arabian Sea trade before European
entry sometimes recorded a trade in Indian
cotton. Little is known as to how large or how
systematic the trade was. It is safe to assume
that cotton formed part of a diversified basket
of goods carried by general merchants, and
did not involve a specialized trading system.
This was to change in the nineteenth century
with the rise of Indo-European trade in
cotton. Cotton export to Europe began from
the second half of the eighteenth century
in response to growth of cotton spinning
in Britain. Cotton was not an indigenous
crop in Britain; but a certain quantity was
imported mainly for use as candle wick.
Clothing manufacture using cotton yarn,
rather using a mixture between cotton
and linen, nevertheless did develop in the
eighteenth century mainly in response to
the importation of Indian cotton yarn. In the
1760s, the domestic production of cotton
goods expanded very rapidly. Between 1767
and 1785, patents taken by James Hargreaves
for the spinning jenny and Richard Arkwright
for the spinning frame, as well as the wider
adoption of the steam engine in factories,
increased the demand for raw cotton greatly.
Between the year when the spinning jenny was
52 economic history of india
inaugurated, and 1801, annual cotton imports
into Britain increased from 2,000280,000
tonnes. Nearly 90 per cent of this quantity
came from the United States, where a dramatic
growth of cotton cultivation followed the
invention of Eli Whitneys saw gin (1793).
The trade in Gujarat cotton, which was in fact
a much older trade, expanded at the same time
from less than 100 in the 1780s to about 2,000
tonnes at the end of the century.
The prospect of selling raw cotton instead
of textiles was immediately noticed by the East
India Company, and especially its Bombay
branch, partly in response to enquiries made
by British manufacturers with the directors
of the Company regarding Indian cotton.
Surveys were done in the 1790s about
production, quality, and internal trade, and
it was concluded that a significant quantity
of procurement for exports would not affect
the Indian prices more than marginally. The
experience of selling Indian cotton in Britain
was, nevertheless, disappointing. Partly
because of the poor quality of ginning, and
partly internal transport costs, Indian cotton
did not sell well in London. A large part of
Gujarat cotton still went to Bengal overland,
and the prices offered did not exactly succeed
in diverting it to export trade. The situation
changed during the Napoleonic wars. Trade
with the United States became uncertain,
and in the same proportion, trade with Asian
sources became more attractive than before
regardless of the price. A boom quickly
followed, and a crash thereafter, as trade with
America was resumed. Thereafter, for the
next three decades, a series of partnerships
between the administration and private
entrepreneurs attempted to reproduce
American cotton in India, lower the cost of
transport, and make use of Whitneys gin to
address the most serious problem of Indian
cotton, the heavy admixture of seeds and
dirt. Partly through these efforts, but mainly
because of investments made by Indian traders
and farmers, the cotton export trade steadily
expanded. However, it was not before the
beginning of railway construction (1850s) and
the American Civil War (18615) that Indian
cotton truly established itself as the fibre of
choice in Britain.
DOMESTIC TRADE
At the time of Aurangzebs death, the
Ganges and the Indus provided the main
transportation arteries for domestic trade
in bulk commodities in north India,
supplemented by numerous confluent rivers
and short- or long-haul caravan traffics. The
two major arteries of river-borne trade met in
the Punjab, where caravans that crossed the
Himalayas to connect India with Afghanistan,
Iran, and Central Asia, also joined. Apart
from grain, the overland traders carried also
salt, cloth, spices, and horses. In the Deccan
peninsula, where neither navigable rivers nor
wheeled traffic could penetrate far into the
interior, the main mode of overland carriage
of goods was the pack bullock. Bullock trains
of enormous size, managed by the Banjaras,
connected northern Indian with southern
India, and connected the coasts with the
capital cities in the Deccan. These overland
traffics were supplemented by coast-to-coast
shipping conducted by a large number of
maritime communities.
In the eighteenth century, domestic trade
was subjected to contradictory tendencies. On
the one hand, frequent warfare took a toll on
normal economic life in many regions; and
the decline of the Mughal fiscal system may
have upset those channels of grain trade that
had been too closely linked to taxation. On
the other hand, the emergence of specialized
clusters of textile production in the coastal

areas stimulated the movement of cotton and
grain from the interior towards these zones.
Coast-to-coast trade was also stimulated
by the presence of the Europeans, who
sometimes lent their idle shipping capacity
for the purpose, and almost always formed
partnerships with Indian traders who operated
on short-haul coastal trade. In regions located
near the river Ganges, little disturbance is
in evidence. Cities such as Benares, Patna,
Murshidabad, or Dhaka, seemed to thrive
commercially speaking, until the advent of
British rule changed the scenario somewhat.
The rise of British power in the eastern
Gangetic apparently stimulated domestic
trade in grain, even as it adversely affected
the fortunes of the older capitals such as
Murshidabad and Dhaka, and with it, some
of the older banking and merchant firms
that depended on the custom of the Nawabi
regime. One study finds evidence suggesting
a rise in the market power of the non-
resident grain merchant in late eighteenth
century Bengal.36 Attributed directly to rise
in rice prices and frequent subsistence crises,
the trend partly derived from increasing
demand for grain in the new urban centres
like Calcutta. In the western Gangetic,
specialization of some areas located close to
the rivers in the production of indigo and
cotton stimulated areas situated further away
to specialize more in grain production and
trade.37 Overall, there seems to be evidence of
specialization and market integration in the
late eighteenth and early nineteenth century,
largely as a result of new patterns of trade.
Interestingly, in studies on domestic trade
in northern India, the merchants appear all
sedentary, either town dwellers or settled
in the large villages that housed the mandis
and haats. Conspicuously missing from
trade history is a significant reference to the
transporters themselves. For northern India,
transition to colonialism 53
the lack can be attributed to the fact that much
transport was arranged by hired boatmen, who
did not take a direct part in trade itself.
Patterns of domestic trade in southern
India, and changes therein, remain an
under-researched subject. In sharp contrast
with north India, in the case of the south,
we do know rather more on the transporters
themselves. Some suggestive facts about
caravan traffic can be gathered indirectly from
the history of the carriers (see Box 2.5).
BUSINESS HISTORY: MERCHANTS AND
BANKERS
The unstable political conditions of the
eighteenth century had created unusual
scope for commercial enterprise. The major
activities, in which large-scale private capital
was engaged in the eighteenth century were
trades in cotton, grain, cloth and opium, tax
farming, lending to the state, money changing,
and internal remittances. Tax farmers and
big bankers thrived on fiscal weakness and
collapse of the successor states, which tended
to be heavily indebted. Money changers
flourished because of monetary fragmentation
of a territory that had been relatively more
united a century before. And the remittance
business grew because of the emergence
of new zones in which political power was
fragmented and weak, but the regions,
nevertheless, were quite central in commodity
trade (for example, Malwa or Punjab).
The scale of operations of some of
the Indian trading firms was large and
multinational, but such big firms were not
many. The big firms frequently combined
trade with banking services. There were
also specialized banking houses or pedhis.
These firms performed money changing or
converting one currency to another, provided
and cashed bills of exchange or hundis, lent
54 economic history of india

Box 2.5 The Banjaras

State formation in the eighteenth century was intimately connected with the enterprise of the Banjaras,
mobile transport operators, whose enigmatic history has received some attention in recent scholarship.
Although British descriptions in the nineteenth century sometimes defined the Banjaras as a caste,
more plausibly, the name represented an occupation that recruited workers from many castes and
communities. Nevertheless, there was some coherence in their language, and in turn, their regional roots.
Early linguistic research placed the origin of the main subgroups in Marwar. As for their occupation, three
interrelated functions are mentioned in the sourcestrade, transport, and supply of grain to armies, or
the counterpart of the work of the commissariat department. Sometimes, two further roles were implied,
pastoralists, and mercenary soldiers. Of these roles, the one that was constant through time was that
of the transporter. The Banjaras were usually not traders as such, but could take on that role from time
to time. Their comparative advantage, however, rested upon their ownership and management of large
bullock caravans.
Curiously, almost all systematic references to the Banjaras come from politico-military contexts,
suggesting that, whereas the consumption needs of sedentary populations were largely met by the
specialist merchants, the Banjaras particular advantage lay in supplying mobile army units in terrains
that did not have either navigation or wheeled carriage. The importance of Banjara enterprise notably
increased from the fifteenth century with the rise of the Islamic states of south India. We surmise this
from the acknowledgment of their value in the Tarikh-i-Ferishtas (160626) chronicle of the Deccan
dynasties, and in the Tarikh-i-Badauni (1595). Aurangzebs Deccan campaign also needed the Banjaras,
which we know from a promise of immunity that major Banjara groups in the eighteenth century claimed
to have received from the emperor. Continuing the same tradition, Cornwallis awarded Somah Naiq, a
leader, a document of immunity in 1791.
In the eighteenth century, the Banjaras were more critical than ever to the major states of the Deccan
peninsula, namely, Hyderabad, Mysore, Maratha, and the English East India Company. They gained
in importance for two reasons. They transported cotton from interior Deccan to the textile producing
villages on the Coromandel; and they supplied grain to the large mobile army units that were either
at war, or in readiness for war. Two subgroups, Rathor and Bartia, emerged into prominence in this
time. They were often at conflict, which suggests the obvious fact that, with grain becoming dear and
demand rising, there was fiercer competition between supplier groups. Another point of conflict was
the relationship between the Banjaras and the British. Some Banjara groups displayed divided loyalty
between the Company and the Indian kings; and the leaders were severely punished for such breach of
contract. Despite these frictions, 40,000 bullock loads were constantly on hire by the Company and its
allies during the Anglo-Mysore wars, and these caravans ensured the victory of the allied army.
Reflecting this growing dependence of the Company on the Banjaras, estimates were made of the scale
of the Banjara enterprise about 1800. Since the Company officers had links with the naiks (headmen) of
the major tandas (camps), the estimates can be treated as reliable. The bullocks in the possession of the
two major subgroups numbered 170,000 (90,000 with the Rathors, and 80,000 Bartias). With an average
bullock load of 140 kgs, the number of bullocks corresponds to about 24,000 tons in the weight of grain.
This is a minuscule quantity when measured against the possible consumption needs (at least 2 million
tons of grain per year) for the approximately 50 million people who lived in southern India. But it is large
when measured against the consumption needs of the several hundred thousand soldiers, many of them
full-time. With such limited scale, the Banjaras could not have been significant commercial actors in the
grain market, or played a role in mitigating famines and scarcities.
 transition to colonialism 55

If these numbers are reasonable, then, according to my interpretation, the Banjaras had never been an
important accessory to trade and consumption, but they were a crucial accessory to warfare. We can draw
two lessons from this interpretation. First, their particularly visible role in the eighteenth century owed
to the frequency of wars and conflicts in the Deccan. And second, the decline of the Banjara enterprise
thereafter had more to do with the end of warfare than the development of new bulk transport systems
such as the railways. The political importance of these communities ended with the Anglo-Maratha wars.
Thereafter, they appeared in official records more often as vagrants and criminal tribes than as people
with useful pursuits. Many, no doubt, did change over into professions that received the endorsement of
the colonial administration, mainly cultivation.

Readings: The best source on the Banjaras to date is Captain John Briggs (Persian interpreter in the
Hyderabad court), Account of the Origin, History, and Manners of the Race of Men called Bunjaras,
Transactions of the Literary Society of Bombay, Volume I, London: John Murray, 1819, pp. 17097. See
also R.G. Varady, North Indian Banjaras: Their Evolution as Transporters, South Asia, 2(1), 1979, pp.
118; Joseph Brennig, Textile Producers and Production in Late Seventeenth Century Coromandel,
IESHR, 23(4), 1986, pp. 33355. On the nineteenth century, useful references to the Banjaras can be
found in Ravi Ahuja, Opening up the Country? Patterns of Circulation and Politics of Communication
in Early Colonial Orissa, Studies in History, 20(1), 2004, pp. 73130; N. Benjamin, The Trade of
the Central Provinces of India (18611880), IESHR, 15(4), 1978, pp. 50514. On criminalization,
see Bhangiya Bhukya, Delinquent Subjects: Dacoity and the Creation of a Surveillance Society in
Hyderabad State, IESHR, 44(2), 2007, pp. 179212.

to governments, and occasionally took up When the Company consolidated as a state

revenue contracts. Such activities brought
business firms and rulers closer to each
other. Yet, there are not many examples
of business firms taking a close control or
interest in political matters. Nor were there
many instances where trading and banking
firms became involved in industry. Artisans
remained at a distance from professional
traders and bankers. The latter did finance
industry in the case of exportable goods
such as textiles in certain regions. But these
cases were exceptions rather than the rule.
Commercial and financial capital, thus,
found relatively little use outside commerce
and banking. A large part of the trading and
banking profits went into the purchase of idle
assets such as gold jewellery, and spiritual
assets, such as building temples, construction
of ghats in Kashi, or charity and relief during
famines.
in the early nineteenth century, the trading
communities prominent in Delhi, Agra,
the Punjab, Rajasthan and Sind, were the
Khatris, the Lohanas, and to a smaller extent,
the Bhatias. Their counterparts among the
Muslims were the Khojas and the Parachas,
said to have been converted Khatris. They
were prominent as financiers of local trade and
banking. They were engaged in the overland
trade with Central Asia and Afghanistan. They
occasionally took part in local administration.
But none played a significant role in maritime
trade. Agents of north Indian merchant-
banking firms conducted business in other
parts of Asia. They did not become marginal
even after the emergence of European
dominance in the Indian Ocean, but continued
to operate in commercial centres connected by
overland trade routes.
56 economic history of india
A series of recent studies have drawn
attention to overland trade and argued that
this form of enterprise has been somewhat
neglected in a historiography of trade
dominated by the European companies and
private traders. Stephen Dale, for example,
studies Multan merchants based in Astrakhan,
a port city on the Caspian Sea.38 The political
influence of two great empires, the Safavid
in Persia and the Mughal in India, served as
an umbrella of protection for the expatriate
merchants in both Persia and Central Asia.
And, in this account, the decline of these great
empires exposed the Indian commercial actors
to greater risks. Scott Levis work on similar
groups in Central Asia reveals the mechanism
of their business.39 Agents of firms went
with merchandise to these distant locations,
and with the profits earned from the trade,
conducted small-scale credit transactions in
the countryside. In this account, legislation in
late imperial Russia restricting credit business
led to a decline in these operations. Claude
Markovits shows how merchants and bankers
from the Shikarpur and Hyderabad towns
in Sind spread out worldwide between the
eighteenth and the nineteenth century.40 The
Shikarpur group financed overland trade
between South Asia and Central Asia, remitted
money, and supplied credit locally. Their
members set up posts in towns spread over a
large area, carrying on sometimes at risk to life
and property. The Hyderabad group consisted
of merchants who entered international trade
later, but globalized operations in the same
way, eventually setting up posts from Kobe to
Panama.
In the west, Gujarat was one of the more
urbanized and commercialized regions of
India at this time. Hindu and Muslim trading
communities in Gujarat and Saurashtra
conducted not only inland trade, but also
maritime trade between the Gujarat coast of
India and the Persian Gulf, Arabia, Africa, and
Malabar. The Gujarati coastal communities
were also good shipwrights. Until the advent
of the Europeans in the Indian Ocean, they
also conducted trade with Southeast Asia. It
is said that Muslim Gujarati traders initiated
the conversion of Indonesia to Islam. Other
communities taking part in the Indian
Ocean trade included the Europeans, the
Armenians, and the Arabs. The relatively
less commercialized Maharashtra region
drew its capital and enterprise mainly from
Gujarat. In the south, two prominent trading
communities were the Telugu-speaking
Komatis and the Tamil-speaking Chettis. In
eastern India, according to medieval Bengali
ballads and European travel accounts of
the seventeenth century, members of the
Bengali trading castes took part in the Bay of
Bengal trade. In the early eighteenth century,
north Indian traders became prominent in
silk trade and high finance. A steady stream
of merchants and bankers migrating from
western and northern India also began
from this time. The firm of the Jagatseth
in Bengal commanded much wealth and
reputation. Their proximity to state offices
and possession of exclusive control of the
mint and money-changing businesses during
the early eighteenth century established their
hundi as a reputed commercial paper, though
it did not circulate far beyond the borders of
Bengal.
With the rise of the Company regime, some
of the older forms of financial dealings, that
had thrived on state failure, came to an end.
Many of the houses that came into prominence
in the eighteenth century successfully
made the transition from a form of business
dependent on bankrupt regional states towards
a form of business more deeply tied to private
commerce and industry, and in turn, to the
Companys own dealings.

A striking example of decline was the
Jagatseth of Bengal. The Jagatseth sided with
the English in the palace revolution that
saw the Company begin to control Bengal.
Robert Clive held a reception in honour of
the Jagatseth that cost an amount of money
which would exceed a million rupees at
todays prices. The Seths declined later mainly
because a fiscally stronger Company did
not need them any more, but partly by their
failure to adapt to the new economy. From the
1770s, their fortunes began to fade with the
start of the Companys treasury in Calcutta
and a reduction in state allowances. The last
Jagatseth Gobindchand died in obscurity as a
poor state pensioner in 1864. The fortune of
many small Marathi banking groups became
precarious because of their dependence upon
the forever bankrupt Maratha states. For a
considerable length of time (approximately
the late eighteenth century until 1835), licence
to mint was farmed out widely to bankers and
money changers. After 1835, currency reforms
affected such firms adversely. Finally, as the
general importance of tax farming declined, so
did the fortunes of many mercantilefinancial
houses for whom this had been a source of
income.
On the other hand, many of the
communities engaged in trade and banking,
and a few not so engaged, found new ways
of earning profit. For example, the firm of
Trawdi Shri Krishna Arjunji Nathji of Surat
saw continued prosperity in return for loans
that it made available for British campaigns
against Holkar. A new element in business
during the ascent of British power was the
broker of European trading firms. They were
Indian agents who mediated between artisans,
local merchants and the European firms.
Employment of Indian agents was a routine
practice of all European firms. In some cases
such agents started as, or became some sort
transition to colonialism 57
of partners. This was the background from
which the early nineteenth century Bengali
business enterprise arose. Such partnerships
can be found in all areas of India where
European traders were active. One example is
the Parsis. Parsis were traditionally not traders
or financiers, but artisans, carpenters, weavers,
and shipbuilders. Their entry into trade was a
result of their contact with the Europeans as
brokers.
One form of transaction routinely
conducted by the pre-colonial bankers had
been remittance by means of the hundi. In
earlier times, revenues were safely remitted
by using hundi. The Company too relied on
the services of the Indian bankers for such
purposes. Whereas the Jagatseths declined,
the firms of Gopaldas of Benares and Arjunji
Nathji of Surat prospered by using the custom
of the Company. These houses had agents in
nearly all major commercial towns of northern
and western India. They were connected
through a system of intelligence, unmatched
in efficiency and penetration by anything the
government had created, at least until the mid-
nineteenth century. The Company officers
at times relied on shroff news for the latest
information on military campaigns in another
part of the territory.
Like the Parsis, a collection of Bengali
individuals drawn from both trading and
non-trading backgrounds successfully helped
or collaborated with European capitalists
between 1800 and 1850. By the end of the
eighteenth century, European merchants
and former employees of the Company were
setting up firms in Calcutta. In this enterprise
they collaborated with Bengali capitalists.
These firms were known as agency houses.
They traded in some of the goods then in
much demand, such as opium, indigo, silk,
foreign textiles, and sugar. They were also
engaged in a limited way in banking and
58 economic history of india
insurance. Until about 1834, they received
deposits of Company officials attracted by
speculative interest rates and the exchange
rates offered on remittances. This was a
major source of their capital and an impetus
to their banking services. The demand and
price of indigo were notoriously unstable. A
violent crash in the early 1830s drove many
of these firms to the wall. Thereafter, deposits
of Company officials dried up. The agency
houses began to rely more on Indian partners
for capital and management. These firms
entered banking, insurance, coal mining, silk
filatures, shipbuilding, along with indigo,
opium, and sugar. Some of them ambitiously
diversified into manufacturing based on
machinery. In the case of Jessop & Co., one
of the oldest engineering firms in India, this
diversification involved collaboration between
agency houses and artisanmechanics.
There were several Indian individuals
and families that became millionaires during
this brief period of Indian ascendance in
Calcuttas commerce and industry. Notable
examples were, Dwarakanath Tagore, Rustomji
Cowasji, Motilal Seal, and the Law family.
The first three names commanded immense
credit in the money market. The firm Carr
Tagore was the largest in scale and had the
most diversified interests. Dwarakanath, the
grandfather of the Bengali poet Rabindranath
Tagore, was a highly successful entrepreneur,
a philanthropist, and a zamindar. Using his
official connections with the government,
and friendships with British entrepreneurs,
he was able to develop a major financial and
commercial house. His interests included
colliery, tea, salt, steamboats, indigo, and a
major bank. His own zamindari estate grew
indigo. His own bank, the Union Bank,
dominated the financing of the indigo trade.
The end of these partnerships came in
another crash in 18478, when the Union
Bank collapsed. This date effectively marked
the end of Bengali involvement in large-scale
business. From then onward, Bengali moneyed
people tended to invest in zamindari. Various
accounts are offered to explain this regression.
The three main explanations are: the attraction
of zamindari as an investment and as a
way of life, European dominance in large-
scale trade and industry, and a speculative
mentality. The third factor is a reminder that
the history of these partnerships was never
a sound one. Fraud, disputes, cliquism, and
distrust were widespread because both the
local and the foreign partners were driven
by a mentality that N.K. Sinha has called
predatory capitalism. The majority of the
foreign partners were determined to get rich
quickly and return home. In this prevailing
mood, no stable rules, institutions, or a
foundation of trust could take shape. Both
the Indo-European collaborations, and the
financial capacity of the ventures they floated,
were thus basically unsound and fragile. They
were too weak internally to survive the crash of
18478. A further reason can be advanced on
why the Bengalis did rather poorly in industry
and commerce. The business environment of
the early nineteenth century, being dependent
on commodity trade, was exposed to high
price risks. Interest rates were high. Any
business, to withstand such an environment,
would need a lot of community resources,
such as mutual help from fellow community
members, and honesty and trustworthiness
in dealings that were sensitive to information.
Bengalis conspicuously lacked such social
capital, especially the tradition of community
mutual support. For, they did not all hail
from a business community. Most were single
individuals who had entered foreign trade
from opportunistic motives.
After 1848, commerce and industry in
Calcutta were dominated by British capital,

and by capitalists who were willing to make
long-term investment commitments. The most
prominent group among the Indian business
associates of the European capitalists was the
Marwaris.
BUSINESS HISTORY: INDUSTRY
The early nineteenth century saw a fall in
the scale of production and export of Indian
cotton textiles because of decline both in
European demand and in demand from the
impoverished Indian aristocracy. Import of
machine-made cloth and yarn from Britain
greatly reduced the extent of the Indian hand-
spinning and hand-weaving industries, and
shrunk Indias position as a supplier of cloth to
the world. The resultant process of increasing
unemployment of artisanal workers has been
designated de-industrialization. The word
also refers to a macroeconomic transformation
that resulted from this development, namely,
the progressive agrarian orientation of the
workforce, or de-industrialization of an entire
workforce.
As an empirical proposition on the
textile industry, de-industrialization is valid
but incomplete. It is in need of much more
quantitative research. Early historical works
on regional economies that commented
on industrial decline used impressionistic
data.41 The lack of an empirical foundation
was addressed by A.K. Bagchi, who showed
that the proportion of working population
engaged in industry was higher in 1800
(possibly 1518 per cent) than in 1900
(about 10). Michael Twomey estimated that
before English imports, about 45 million
persons were engaged in the hand-spinning
industry. Employment loss by the end of the
nineteenth century was at least as large.42 Both
these tests used indirect measures. Recently,
a more direct and reliable estimate of job
transition to colonialism 59
loss in Bengal textiles in the early nineteenth
century suggests a notional unemployment of
half-a-million full-time workers.43 The extent
of the loss, at about 4 per cent of the initial
workforce spread over several decades, was
large but cannot be called catastrophic. If the
scale of job loss is hard to measure, income
loss is even more difficult to measure. There
should be significant difference between
the two indices. Hand-spinners were mainly
domestic workers who performed spinning
in their spare time. The low opportunity cost
of their labour meant that they were willing
to perform spinning for a small payment.
The income loss, therefore, should be smaller
than the employment loss. The effect of
de-industrialization on general welfare is
another unanswered question. While there
was indeed rural unemployment, if disguised,
the massive fall in yarn and cloth prices that
brought it about also enabled the poor to buy
more cloth and the handloom weavers to buy
their principal raw material more cheaply than
before. It is not easy to settle what the net
effect might have been.
The timing of the process of decay also
leaves room for speculation. It is clear that the
time was regionally variable, and in several
parts of India, a decline did not really begin
until the railways came in. The confused
picture is made more so by some research on
the late nineteenth and early twentieth century
suggesting that de-industrialization continued
in the census period (18811931), based
on evidence that does not lend itself to easy
reading (see Chapter 6).
Apart from cotton textiles, iron and steel
industry is often cited as an example of decline
of traditional manufacturing. It is true that
the import of iron goods increased steadily
from the late eighteenth century. However,
much of this demand was for products, such
as cannons, guns, cutlery, or construction
60 economic history of india
material, which the Indian iron smelter and
blacksmith did not make on a large sale.
Confirmed evidence of decline of artisanal
smelting is available from the second half
of the eighteenth century. The evidence is
discussed more fully in Chapter 6.
The picture of a shock, of whatever
intensity, needs to be qualified with reference
to the many new types of innovative
enterprises that were developing in the port
towns in the first half of the nineteenth
century. Several of them involved European
capital, technology, and artisanal skills, and
were stimulated by the general growth of
Indo-European business after the end of the
Companys monopoly over Indian trade in
1813. An important example was indigo, as we
have seen. In writing about early nineteenth
century industries, historians have tended to
focus too narrowly on indigo. Such a focus
might make it seem that the new trend in
business enterprise was a bubble that soon
burst leaving little long-term effect. In fact, the
new types of enterprise were quite diverse,
and while several of them failed commercially,
they collectively represented a flourishing
entrepreneurial culture.
Long before the decline of indigenous
smelting became pronounced, another
form of artisanal iron-making was trying to
establish itself in India. In the nineteenth
century, artisanentrepreneurs having some
connection with the East India Company tried
to erect viable iron shops after the English
model. They were artisans brought up in
the British tradition. In this respect, they fit
the flow of migrant artisans and labourer
from Britain to India better than the foreign
investment that went into tea, jute, and indigo,
a little later. Migration of European artisans
to India had begun in the eighteenth century.
Many more travelled to India to make a career
after the end of the Companys charter in
1813. A Scottish iron-master, Andrew Duncan,
for example, set up a charcoal-using smelting
factory in the Birbhum district of Bengal
about 1810. The factory failed a few years
after. In the same region, several other obscure
ventures in iron smelting can be heard of. All of
them lived for relatively short times. The most
famous of such enterprises was established
in the river port Porto Novo by a well-known
iron-master Josiah Marshall Heath in 1825.
This enterprise was noted for the excellent
quality of the iron produced and the relatively
long time that it had lasted. As late as 1849
the Porto Novo venture still caused much
official correspondence to be produced. One
of the subjects of the correspondence was why
it was going bankrupt despite the quality of
the finished output. The answer still remains
somewhat mysterious. Recent research,
however, suggests a common problem that the
charcoal-burning iron industry was beginning
to face in the early nineteenth century, namely,
high cost of wood fuel as forests receded.
Transportation from longer distances proved
prohibitively expensive in the absence of good
roads and railways.44
A more secure foundation for
industrialization was being laid at the same
time in the cities, especially the three port
cities, Bombay, Madras, and Calcutta. The
European population in these cities had
encouraged the manufacture of many types of
consumer goods patterned after goods in use
in Europe. Contemporary reports mentioned
particularly the variety and number of horse
carriages and furniture, but also mentioned
watches, clocks, shows, and glassware.
Some of the artisanproprietors of the firms
making these goods proved enterprising,
and set up large-scale workshops producing
intermediate goods. The western bank of
the river Hooghly near Calcutta, which was
to emerge as a hub of jute mills in the third

quarter of the century, had begun to grow
already into a place of factory establishment
from the early 1800s. Here, shipbuilding
yards had been started, one William Jones
had set up a canvas manufacturing unit, and
the Companys large salt warehouse had
even created a small European settlement.
Curiously, much of the factory enterprise
remained concentrated around the cities.
Many European entrepreneurs said before
Parliamentary enquiries that they distrusted
the kind of justice that the provincial courts
meted out. The extensive investment made in
the indigo factories, all of which were located
in the villages of Bengal and Bihar, served as
a reminder that this factor did not necessarily
act as an obstacle to industrial enterprise. But
then, the indigo disturbances of 185960
also reminded the expatriate capitalists that
the mofussil was not a particularly business-
friendly environment for them.
A good example of early industrialization
is shipbuilding. India had a long and
rich tradition in mercantile marine and
shipbuilding. The advent of the Europeans
in Indian Ocean created competition for the
Indians in coastal shipping. It also stimulated
the business of some of the ancient ports like
Masulipatnam or Cambay. Indian traditional
enterprise in ocean shipping declined when
sailing vessels were replaced by steamships
in the early to mid-nineteenth century.845 But
already, a new Indo-European enterprise in
shipbuilding and dockyard had begun. These
enterprises built on average larger ocean-going
ships compared with the ships built by Indian
artisans, which were mainly used in short haul
and coastal trade. In Calcutta itself, we know
of the firms of Henry Watson (17815), James
Kyd (c.17901818), who was the origin of the
name Kidderpore, and the government docks
(1795) that were possibly located in or near
Kyds site. To the south of Calcutta, at a point
transition to colonialism 61
of anchorage called Fort Gloucester or Fort
Gloster, ships were built between 1811 and
1828. The same site saw a cotton factory as
well.
If these were mainly European firms,
for after all shipbuilding on such scale was
not indigenous to Bengal, in Bombay at
the same time, shipbuilding enterprise had
grown mainly on the lines of Indo-European
collaboration. In 1838, the great shipwright
of Surat, Nowrojee Jamsetji, sent his son
and nephew to England to learn the craft of
building steam ships. Ardaseer Cursetji, a
master-builder of ships in the 1840s, straddled
two traditions of shipbuilding, the Indian
sailing ship and the European wood-and-iron
steam ships, and made the transition from one
to the other so successfully as to become the
head of the Bombay shipyards in the 1850s.
In the presence of so much diversity and
dynamism, it seems difficult to characterize the
industrial experience of the early nineteenth
century by the unduly dismissive term de-
industrialization.
THE STATE AND PUBLIC GOODS
One of the most striking features of Company
rule was its ability to raise government
revenue. Revenue figures over time are slightly
misleading, since the territory was expanding
in area and population. Careful adjustments
for these changes would still show a significant
rise in government income. For example, in
Bengal, revenue per square mile increased
from Rs 236 per square mile in 1763, to Rs
520 per square mile in 1817, and further to Rs
724 in 1853. This was a very large increase in
real terms, since prices, while highly variable,
did not show a rising trend in this time span.
How was this increase achieved? The major
contributory factor was undoubtedly the
institutional change in land rights, which
62 economic history of india
eliminated a wide variety of intermediary
earners between the peasant and the state.
But that was not all. The government was
also determined to make trade pay more
money. Salt, for example, was made to yield
an income in a variety of ways; inland duty
where the manufacture was not restricted to
the government, profits from trade where
the government monopolized procurement,
and customs duty on imported salt. The
government exercised a monopoly in salt
production and trade in lower Bengal. The
manufacture of salt was a widely practised
industry in deltaic Bengal on lands that were
inundated in the spring tides. The Company
induced the landlords to reserve the output
for the government, by paying compensation
to them. Despite much smuggling and tax
evasion, the government managed to maintain
a profit on the business. Opium, taxed on
roughly the same principles, was again a
lucrative source of revenue in the first half of
the nineteenth century. Such extraordinary
fiscal success was unprecedented in the
political history of India for centuries before
Company began its rule of Bengal. How was
money being spent?
In the century of consolidation of colonial
rule (17571857), the government intervened
only indirectly in the sphere of market
transactions. The important fields where
the government left a mark were: external
and internal security, currency, irrigation,
law and justice, education, and embankment
construction. Nearer the end of the time
span covered in this chapter, direct and
indirect sponsorship of several other forms
of infrastructure began to take shape. These
were joint-stock banking, a postal system, the
railways, and the telegraphs, but their effects
were felt in the second half of the nineteenth
century, and will therefore be taken up in later
chapters.
The overwhelming importance of naval
and military head in the government budget,
even after large-scale warfare had ended
and armies were being reduced in size, did
not reflect anxiety about external threats
as much as it did worries about internal
security and administration. In the early
nineteenth century, a great deal of internal
policing, reconstruction, and engineering were
entrusted to the army, partly because of the
extraordinary nature of some of these needs,
and partly, the absence of an alternative setup.
It was only in the 1850s that the administration
could achieve sufficient specialization. Direct
war finance and finance of the debts that were
incurred during wars reduced in importance
steadily after the third Anglo-Maratha wars
had been concluded (18178), and a few
items contributing to infrastructure increased
their total share (Table 2.2). Not all of the
new duties cost the government money,
currency reforms or legislation did not, for
example. Some of the others, such as policing,
constructing irrigation canals, and setting up
schools, did cost money.
Policing the Roads
From sometime towards the end of the
eighteenth century and until the 1830s,
dacoits, river pirates, and gang robbers
formed a major preoccupation of the
Company administration. Many parts of
India were affected by seemingly an increase,
certainly an increased reporting, of incidents
of robbery and related violence. But there
were two regions where organized crime
posed particular difficulties for logistical
and institutional reasons. One of these was
the mainly forested districts in central India
which had belonged to semi-independent
Maratha chiefs or their vassals, and through
which major pilgrim and trade traffic passed
 transition to colonialism 63

Table 2.2 Major Items of Expenditure of the Government of British India, 180857
(average annual, percentage of total)

18089 182930 Four Years Preceding 1857

Revenue administration * * 20
Naval and military 59 54 37
Civil, judiciary and police * * 17
Public works * * 5
Interest on debt 18 12 7
Home charges * * 11
Allowances to princes * * 3
Other items 23 34 0
Total 100 100 100
Total in million pounds 11 14 30
Source: Hendricks, On the Statistics of Indian Revenue; Colonel Sykes, The Past, Present, and Prospective Financial
Conditions of British India, Journal of Royal Statistical Society, 22(4), 1859, pp. 45580.
Note: * included in other items.

on their way from the western coast to Ujjain,
Benares, Mirzapur, and Mathura. On these
roads, and the surrounding countryside, mini-
cavalry armies called pindaries conducted
raids in the 1810s and 1820s, and groups of
people who had perfected the art of strangling,
called thuggees, killed travellers. The terrain
made it relatively easy for the attackers to
disappear into the forest or nearby villages
after committing a raid. The other region
where gang robbers caused difficulty was lower
Bengal, where the numerous rivers supplied
both easy victims and easy escape routes. A
whole folklore developed in Bengal around the
very large bands, sometimes numbering several
hundreds, who robbed the rich gentry with
exemplary efficiency, at times accompanied
with gratuitous violence.
The curious aspect of the outburst of crime
that captured the imagination of the colonial
administrator was the organization behind the
criminal enterprise. The administrators saw
the perpetrators, with some justification, to
be similar to any other profession-based caste
or community. Like any ideal caste, they had
strong team spirit, shared a religious bonding,
and received tacit patronage of powerful
individuals. The patronage came from the
local princes and zamindars, partly because the
gang leaders had earlier formed the irregular
soldiery of their armies before the advent of
British rule, and partly, some of these princes
doubted the strength of British rule and
wanted to retain links with prospective soldiers
in case the political tide turned.
On the whole, the crime wave owed to a
larger problem which was economic in nature,
namely, the disbanding of soldiery on a very
large scale as warfare came to an end in central
and northern India. The former soldiers who
had lost jobs or had to change occupations,
numbered in the hundreds of thousands. This
process had been going on in all parts of India
at the turn of the nineteenth century, and
accelerated after the second Anglo-Maratha
wars. So far little research has been done on
how the shrinking and fragmentation of old
armies affected the regions and communities
where the soldiers came from and where they
went. Surely many amongst the disbanded
soldiery went back to land. But a sufficiently
large number were left unemployed, unwilling
64 economic history of india
or unable to change profession, and in
possession of arms.
It is not altogether clear if such anarchic
conditions left any lasting or widespread
impact upon economic life or not. A full
history of predatory gangs and their impact on
society in this period of Indian history is yet to
be written. That the problem occupied a great
deal of public resources and energy cannot
be doubted. Recent scholarship suggests
that important clauses of law, concepts of
criminality and society, and measures to
streamline systems of police and justice took
shape through the process of dealing with
these groups.46
Currency Reforms
In 1799, the Company first considered
the introduction of a uniform currency for
territories under its control. At that time,
major currencies in circulation included the
Bengal silver rupee, the Arcot silver rupee, and
the Madras gold pagoda. Apart from these,
many states issued their own currencies, and
local transactions took place in copper coins or
cowries, both accepted media of exchange for
a long time. The Companys intention was to
have the Bengal sicca rupee replace all others.
However, since the goldsilver price ratio
varied between Madras and Bengal, the plan
did not seem feasible in 1799, and multiple
currencies continued, including several
that the Company itself coined. In 1835, a
Company silver rupee of uniform weight
was introduced throughout the region. One
long-term effect of this reform was a gradual
devaluation and eventual disappearance
of many local means of exchange, such as
cowries, since increasingly the rupee became
the acceptable basis for revenue payments. The
announced exchange rate between the rupee
and the pound sterling was 15:1.
Canals
When the Company took control of
the upper Gangetic plains, an extensive
network of irrigation channels were found
in the western part of the plains. It was clear
that water management had engaged all
medieval regimes. In the older cities, there
was evidence of sophisticated systems of
lifting and channelling water to supply the
palace complex and sometimes ordinary
residents (Fatehpur Sikri and Vijayanagar,
among numerous examples), construction
of large tanks (Hauz Khas in Delhi, tanks in
Vijayanagar), and construction of canals (in
or near Delhi constructed in the fourteenth
century, and in Gaud, the sixteenth century
capital of Bengal).47 The most systematic of
such initiatives owed to Firuz Shah Tughlaq
(135188), who embarked on a network of
canals by harnessing the perennial tributaries
of the Indus in Punjab and the Ganges
Jamuna system near Delhi. The major network
connected the Sutlej with a canal taken out of
the Jamuna. The 200-mile long canal passed
Sirhind and Ropar towns, and sustained Hisar,
a city the Sultan had founded. The depth and
width of these canals allowed navigation. Even
as capital cities were abandoned, the canals
sometimes survived. The Firuzshahi projects,
though meant to sustain new townships,
were also used for irrigation. Firuz Shah was
reported to have been pleasantly surprised to
discover that the canals could make money
by way of an irrigation tax.48 The canals were
inundation canals, that is, received adequate,
sometimes more than adequate water, when
the rivers were flooded during monsoons,
but dried up during the winter months. Still,
contemporary reports suggest that the canals
enabled diversification into water-intensive
and winter crops, such as wheat, gram and
sugarcane in the present-day Haryana, and

their presence made the construction of
wells in the region easy.49 In south India, the
grand anicut on the Cauvery, attributed to
the Chola rulers, was another large pre-British
system.
Most of these ancient systems of canals were
in a state of disrepair decades before Companys
rule began. The Company administration,
by and large, appreciated the importance of
these systems, and restored some of them. The
restored works were located on the Jamuna
(181740s), the deltas of the Cauvery (1830s
and 1840s), Godavari and Krishna (1840s and
1850s). The return on such investment was
expected to come in two forms, indirectly as
increased revenue charged on irrigated land or
as reduction in the risk of famines, and directly
as water rates. Although no precise accounting
was possible on the contribution of irrigation
to governments income, some calculations did
show that these were remunerative investments.
In north India, such investment had some
strategic value and was thus in the hand of the
Military Board. Public works remained with this
department until the 1870s when the public
works departments were set up in the various
provinces.
Law and Justice
Recent economic history scholarship has
shown much interest in the pattern of
evolution of property and contract law in
the non-Western world. The interest derives
from the desire to test a key hypothesis of
institutional economic history, which is
that the rise of the West owed to laws that
ensured security of property and contract.
By implication, the non-Western regions
should have begun with a weaker system of
indigenous law, which the European colonists
may have altered somewhat (see discussion
in Chapter 1). In sharp contrast with the
transition to colonialism 65
stylized view of non-Western law, historians
of colonial India maintain that the British
colonists in fact wanted and tried to preserve
indigenous tradition, mainly because they
thought persistence with tradition would keep
the population peaceable. Was that decision,
however, an economically efficient one? If
indigenous laws were weak to begin with, it
would not be economically efficient. There is,
in fact, no evidence in support of the belief that
the indigenous law on property and contract
had been intrinsically, or that the colonists
thought they were so. Nor would it be correct
to say that tradition was perfectly preserved, or
that traditionalism was necessarily valued by
the colonists. The real situation was a rather
more mixed one.
In brief, the early colonial state tried to
conserve tradition in the constitution of the
laws themselves, but departed from tradition
in the constitution of the courts of justice.50 In
the end, a tradition-bound law was established
together with a system of justice where such
laws were constantly challenged. In order to
see why the decision to conserve tradition
could become disputatious, we need to note
the key element of tradition that this system
sought to conserve. That element was the idea
of the community.
European visitors to the Indian cities in
the seventeenth century observed that Indian
merchants and artisans lived in an insular
social world of their own communities,
that they did not dine or marry outside
communities, and that mercantile law,
including the civil law of property and
contract, existed as social conventions of
castes and communities, rather than as
written statutes of professional guilds. In
the presence of these insular and wealthy
communities in the late nineteenth century,
the British Indian state was caught between
two contradictory goals. One of these was to
66 economic history of india
establish a modern, universal, and capitalistic
legal infrastructure that would override the
community and privilege the individual. The
other was to recognize customs as common
law, which would amount to strengthening
the community. These two goals, privileging
individual rights and privileging communal
rights, made the resolution of property
disputes a confused and contested process for
a long time to come.
In landed property, the main step taken
was to recognize ownership rights over user
rights, not because the pre-colonial rights had
been thought to be insecure, but from a desire
to reduce the scope of overlapping claims
upon the product of land. While land law
thus created unencumbered private property
rights, it left inheritance and succession both
dependent on a notional community custom.
That decision meant following Hindu and
Muslim scriptures, which put the rights of the
extended family before that of the individual.51
The Acts of Parliament in the 1770s and in
1793, which had set up the foundations of
the legal system, both affirmed the principle
of separate jurisdiction for Hindus and
Muslims, with minor difference between
them in respect of how this principle was to
be implemented. Since religious codes were
elevated to the status of indigenous traditional
law, legal experts and linguists attempted
to define, codify, and preserve traditional
law. The most famous outputs of this
scholarship were produced by William Jones,
Henry Colebrooke, Thomas Strange, W.H.
Macnaghten, and Indian sanskritists, notably,
Jagannath Tarkapanchanan.
A striking exception to the reliance on
religion was contracts. The two Acts of
Parliament were more or less quiet over how
matters of contract were to be settled. Jurists
views on this issue were quite mixed. Some
experts thought that the Hindu or Muslim
laws of contract were as good as Roman law,
and others thought that they were weak, at any
rate, were not actively in use. The real problem,
however, was that many non-Hindu or non-
Muslim business communities (Armenians, for
example) did not want the religious law of any
one community to settle their disputes. Even
Hindus and Muslims did not necessarily care
for scriptures deciding cases of impersonal
contract. In practice, then, contract cases
were settled by recourse to English law. As
one judge remarked in 1852, the English law
of contracts has been tacitly adopted by the
natives as an equitable rule.52
Contract presented a curious anomaly in
another way. Although commercial contract
was one of the most disputatious issues in
the eighteenth century, few cases appeared
before the law courts on this subject. The
history of early modern trade shows us that
disputes between European traders and Indian
merchants and weavers were frequent. At
times, the Company officers and European
private merchants felt powerless to enforce
contracts in the absence of a judiciary and
laws that could admit commercial disputes of
such nature.53 Among Indian merchants and
artisans, property and contract disputes were
presumably settled in community courts, and
sometimes in panchayats consisting of a cross-
section of communities. But many other new
business groups, such as the Europeans, were
not part of these communities or panchayats.
In Indo-European trade, therefore, attempts
to protect capitalist interests usually involved
striking deals with the Indian headmen and
brokers, and leaving the enforcement of the
contract to the social or political authority
that these agents commanded over the
producers. These informal means persisted
in the early nineteenth century. The rarity of
cases in the courts of law reflected either the
fact that there was no dedicated contract law

that seemed to all parties to be trustworthy, or
that the headmenagent system was serving
the interests of trade quite well. In both these
respects, a change did come in. The change
came shortly after Crown rule began, and in
the course of the indigo disturbances of Bengal
(see the reference to the blue mutiny above),
which were seen in influential administrative
circles as a failure both of the headmen
system and of the legal system. Traditional
institutions, it was thought, did not secure
large scale business of an impersonal nature
well enough. The outcome was a Contract Act
(1872).
While laws thus suffered from
contradictions, there was progress in setting
up the judicial infrastructure, streamlining
procedures, and in widening their reach. The
first royal charter to the Company, sanctioning
it legislative powers in respect of its own
dependants, was granted by Charles II in
1661, and was soon made use of in the island
of Bombay acquired in 1669. The governor
Gerald Aungier established the first British
court in Bombay in 1672. The first Attorney
General was George Wilcox, an authority on
administration of estates. Before this move,
the Portuguese had implemented their law
in territories under their rule, for more than
a hundred years. Some of the pleaders in the
Portuguese courts now became pleaders in
the British court. These people apart, there
were soon many others dubiously claiming
to be experts in local laws and procedures.
From 1684, the Company began sending
trained professionals from Britain, but there
were few of these in number. In the next 40-
odd years the profession had to live with the
presence of many untrained and self-interested
individuals; lack of proper infrastructure, such
as law libraries; and many judges who were
also businessmen on the side, with competing
claims upon their time.
transition to colonialism 67
The Royal Charter of 1726 expressly
sanctioned the principle that anyone living
in the territories under the control of the
Company and seeking redress under English
law, would be allowed to do so. By default,
English common law became the law of the
land. The charter also allowed three courts to
be established in the three major residencies of
the Company. Known as Mayors Courts, these
tried cases involving European residents. The
Royal Charters became progressively more
detailed from then on. The 1774 one not only
allowed a Supreme Court to be established
in Calcutta, but also empowered it to try
cases of violation of contracts. Section 13 of
this charter introduced the term contract in
Indian statutes in a commercial context.
In the years after the Company assumed
charge of Bengal revenues, Warren Hastings,
the Governor of Bengal, implemented a three-
tier legal system. The courts of the Nawab
Nazim, or the Nizamat courts, according
to prevailing custom administered criminal
law. The Company established civil courts,
where their respective personal laws governed
the Muslims and the Hindus. The Supreme
Court (1774) tried cases involving the state
as a party, or disputants who demanded
the application of English common law or
procedures, including trial by jury. The jury
was entirely European. The Supreme Court
and the all-European jury quickly acquired
notoriety in the case of the state versus
Nandakumar, a local officer who had given
testimony against Hastings, and was hurriedly
executed upon a dubious charge of forgery.
After a brief experiment in persistence
with tradition, the courts were further
overhauled in the first half of the nineteenth
century. The fundamentally segmented
nature of the judicature and law was persisted
with, but the legal autonomy of the highest
court strengthened. Supreme Courts
68 economic history of india
were established in Madras in 1801 and
in Bombay in 1823. Thereafter, a dualistic
courts system came to be established. The
Presidency towns were governed by Acts
of Parliament, royal patent and charters,
and judges appointed on the principles
laid down in England. At the apex of the
Presidency system was a Supreme Court,
where the judges were all Crown appointees
and recruited from England, Ireland, and
Scotland. The jurisdiction of the Court was
local for the Presidency towns; and personal
over all British-born residents of India. The
law in force even in the Presidency towns
was Indian religious law where both the
disputants were Indians and came from a
single religion. Only in matters of commercial
contract was English precedence followed in
all cases. A small-causes court handled civil
suits involving small amounts of money.
In the provinces, the system was quite
different. The provinces were governed by
local legislation and Indian legal authority. The
lowest levels of the courts, the district courts,
were more or less managed by the collector
who was often also the magistrate. In the larger
provincial administrative units, the courts
were again mainly headed by administrators,
but usually with some experience in the legal
matters. Under these courts, the dewanny
adawluts, were a number of tribunals available
to try disputes involving small amounts
of money. Here many of the judges were
Indians, known as amin and munsiff, with long
experience within the official system. In this
way emerged the fundamental features of the
Indian civil law, with its mix between religious
codes in matters of property and succession,
uniform procedures that were created by the
Company, and reference to English common
law where Indian custom seemed to fail, most
commonly in disputes over tort or breach of
commercial contract.
There were many departures from the past.
There was significant convergence between
all segments in the matter of criminal law,
which was still in theory Islamic law previously
accepted as the law of the land, but in practice
had modified it substantially. Even though
the Supreme Courts and the provincial courts
did not often pass cases between them, in
principle, appeals and evidence procedures
were formalized and cases did get transferred
more often within the provincial hierarchy.
The two segmentsEuropean and Indian
jurisdictionseventually came closer through
the so-called Black Act (1836) supported by
the legal advisor to India, Thomas Macaulay,
which subjected the European population
settled in the mofussils for purposes of
business to the same laws that applied to
the Indians. In effect the Act meant that the
Europeans were fit to be tried by the Indian
judges; this provision led to angry criticisms
of Macaulay by a section of the European
population.
Quite apart from the problem created
by segmentation between European and
Indian law, the judiciary in the first half of the
nineteenth century suffered from corruption.
Many European administrators and merchants
thought that Indians by and large approached
the lower courts of law under the assumption
that the judges could be bribed. Partly, this
sentiment was a defensive gesture of the
Europeans settled in the interior to avoid
being tried by the Indian judges, when the
defendant was a European and the plaintiff an
Indian. But the charge of bribery was raised
by the Indians as well. The exercise of such
influence naturally fell disproportionately
upon the Indian munsiffs and amins. It
was sometimes suggested that some Indian
disputants approached the court as they would
a community panchayat, as a site to work out a
negotiated settlement rather than as a site for

finding out the truth, and offered the judges
fees for the troubles taken. However innocent
the motive behind the offer of money, with
such asymmetry built into the system, the
superior officers did not trust the Indian
officers, especially in the lower courts. On
the other hand, there was great shortage of
European legal officers. Consequently, young
and fresh recruits in their early 20s often had
seniority and responsibility thrust on them too
soon in their careers, giving rise to the evil of
boy magistrates and boy judges.54
In the time span covered in this chapter, the
courts acquired an identity separate from the
Company, in that the judges and the pleaders
were increasingly individuals unrelated to
the Companys civil service and the court
procedures independent of administrative
procedures. The courts heard and sometimes
settled cases against members of the
Company. Attorneys could be disqualified
for misconduct. These courts increased the
prestige of the legal profession, and brought
in more people with training. A great deal of
the disputes settled in the courts in the early
nineteenth century dealt with business of the
times. In Calcutta suits often involved large
sums, and related to credit, general insurance,
marine insurance, or remittances. With clients
such as these, legal fees in the larger towns
tended to be quite high.
The word for a lawyer in most local
languages of northern India was vakil.
The vakil in early modern India was not a
lawyer, however. The word usually signified
a functionary of the state engaged in
negotiations. From this context the word
travelled to the courtroom either because
some of the descendants of these negotiators
adapted their skills to fit the businesses of
the courtroom, or the role of the lawyer was
seen to be more in the light of negotiated
settlement of disputes rather than that of
transition to colonialism 69
conducting arguments in search of truth. In
any case, the early vakils or Indian lawyers
were men of little formal training. By 1814,
there was a reasonable degree of control
on the qualifications of vakils. Every vakil
was then expected to have been educated
either in Hindu law in Benares or Muslim
law in the Calcutta Madrassa. The language
of the local courts was Persian rather than
English. Yet, the profession did not gain much
respectability. The quality of education in
Benares and Calcutta was not held in respect,
and knowledge of English and English law
was becoming an advantage. The vakil was
seen as one who is in the hands of a Marwari
broker, who does his business in whispers in
the corridors of the courthouse.55 However,
there were already exceptions, as Rammohun
Roy once noted. The profession needed
intelligence and literacy with English laws,
which qualities were beginning to be supplied
by a new breed of Indians educated in the
Hindu College in Calcutta. Later in the
nineteenth century, the Elphinstone College in
Bombay began to perform a similar role.
Education
Mass education contributes to economic
growth directly because education improves
the capability and productivity of human
beings, and thus adds to resource endowment,
and indirectly by increasing the choice of
occupations for individual scholars making
it more likely that the person with the right
aptitude for a line of work would learn and
perform that work. In order to fulfil such
promises, education must be open to all, and
offer scholars a choice about how they wish
to use education, that is, offer a choice about
what skills they wish to develop. The second
condition demands a standardized curriculum
as opposed to a content that is tailored to
70 economic history of india
produce specific skills. It also demands
removal of barriers to entry that often function
along lines of caste, class, or gender. On all
of these points, the Company state produced
a system that was very different from its
predecessor. Whereas education was earlier
a private or a community good, it became in
principle an open access public good. And
whereas the curricular content was earlier too
tied to particular professions, and therefore,
widely variable, it now became standardized.
In the second quarter of the nineteenth
century, this model started taking shape.
The Company regime became involved in
formulating a policy about general education
in the 1830s. Maintaining adequate supply
of administrative personnel was one of its
concerns. But there was also a growing sense
that education was a means to improve the
quality of life of ordinary people, to create
loyal citizenry, and that such a task could
not be left to private initiative. The resultant
policy to reform education was not simply
imposed in a top down fashion. Reforms
along similar lines were wanted by the Indian
intellectual elite as well, so that there was a
substantial convergence of views on the matter.
Disagreements, however, were present on the
precise content of the new education.
Much of the pre-colonial apparatus
quickly crumbled away after the Company
intervened in education. Historians have at
times made the claim that mass schooling
had been available in pre-colonial India, and
that the new education policy deprived those
communities who previously had access to
schooling, of any education at all. Such claims
are overdrawn. In reality, the recipients of
education in the previous system formed a
tiny minority of the population. After the
transition, the educating classes themselves
made a choice in favour of the new state-
sponsored institutions. It was a decision based
on perceived quality and usefulness of the new
formal system. As far as one can measure, there
was no adverse net impact on the quantity of
education available.
What was the new system a change
from? By far the best source on the state
of indigenous education in early colonial
Bengal and Bihar is a report prepared by
William Adam, and commissioned by William
Bentinck, the Governor General.56 Adam
carried out the commission with meticulous
care, assisted by a large team of informants
and agents, carried a detailed questionnaire
written in several local languages, and himself
travelled tirelessly to all corners of a very large
area, recording his personal impressions of
what the schools actually looked like. In the
end, he produced a set of returns that must be
regarded as the most perfect of the kind ever
obtained in India.57 Adam used a generous
concept of literacy, to include all who could
merely decipher writing or sign their names,
and often even that very imperfectly. The
results showed that in the most literate district,
Burdwan, only 16 per cent of the population
of school-going age (514) received any
instruction at all, and in Tirhut, the least
literate district, 2 per cent did. The average
for all the districts surveyed by him was 7
per cent. The report also estimated literacy
in the adult population. This number should
indicate whether or not one or two generations
previously the state of popular education in
Bengal was better or worse than in 1835. The
percentage of adults found to have experienced
any schooling at all was at 5, suggesting the
conditions might have been somewhat worse
at the turn of the century.58
Adam and subsequent commentators
made important remarks on the quality of
instruction and instructors available in rural
Bengal and Bihar. One significant observation
they made was that the teachers earned a

small income from teaching, which of course
reflected how their sponsors estimated the
return from education. In turn, the teachers
had only a limited commitment to their
profession. Even in the educationally most
advanced district, Burdwan, the teachers eke
out their income by engaging in farming, in
money-lending, in retail-trade, in weaving, in
worldly service, in temple-service, &c.59 The
Scottish missionary, Alexander Duff, estimated
an average teachers salary in local schools to
be Rs 2.9, not above one-half of what is usually
given in Calcutta to the lowest menials or
domestic servants.60 In the generally declining
sphere of Arabic-medium instruction, Adam
wrote, the teachers are all kath mollas, a
disparaging local term for the lowly among
the priests, who possess the lowest degree of
attainment to which it is possible to assign the
task of instruction. Duff described indigenous
education in Bengal in the early nineteenth
century as consisting of small one-teacher
schools organized collectively by a few families
of Brahmins and upper castes, and meant for
their own children.61 The curriculum was
literary and oriented to Bengali and Sanskrit.
This was of course not the situation
everywhere. Sanskrit schools located in Nadia,
Benares or Mithila received greater zamindari
sponsorship, and tended to be specialized
according to the targeted literate profession,
the broad division being that between medical
and theological instruction. Schooling in
these spheres was a tool of trade, a ticket to
professions, and like other artisanal trades,
was sponsored by the community of users.
Admission into the schools, it goes without
saying, was restricted to these communities. So
rigid indeed were the barriers to entry into the
scholastic schools that produced pandits that
even a great Sanskrit scholar of Benares, James
Ballantyne, found nearly every road to forming
collaboration with the Indian scholars closed
transition to colonialism 71
to him. Nevertheless, a section of the Sanskrit
and Arabic scholars that had come close
to British scholars of Indian languages and
learning, known as orientalists, did help the
government in starting institutions in Benares
and Calcutta. These centres of traditional
learning aimed to produce individuals who
would be well versed in English as well as
specialists in scriptures, and therefore, suitable
for employment as consultants in the British
Indian courts of law.
Barriers to entry were also present in rural
schools. Literacy was both gender- and caste-
biased. Girls stayed away from schools. In the
districts where such data was collected by
Adam, among students belonging in 50-odd
castes, five caste groups among hundreds
(Brahmin, Kayastha, who supplied most
of the teachers, substantial cultivators, and
mercantile groups) accounted for two-thirds
or more of the students. In turn, the arithmetic
curriculum varied according to whether
the sponsors wanted their children to learn
agricultural accounts or commercial accounts.
In the rest of India, the state of schooling
was even more dismal than in the most
developed districts of Bengal. According
to surveys by Francis Buchanan Hamilton
in Bihar (c. 1820), the number of persons
who taught, those who could keep common
account, those who could sign their names,
and those who could understand common
poetry added up to 1.3 per cent of the
population.62 Duff reported that in the
Northwestern Provinces the percentage of
children attending school did not exceed four
in 1845. In 1850, the newly created Lahore
division of Punjab, with a population of 2.5
million, had 1385 schools where 11,500 boys
received instruction. A negligible number of
these taught any English, the majority were
Persian medium or Koranic schools. These
scholars would exclude children of the higher
72 economic history of india
classes, who usually received instruction
at home. Girls schools numbered only 16.
The teachers salaries were paid in the form
of grain, gifts, and money, according to the
season and the agreements among the peasant
proprietors who sponsored them.63 The
statistics improved, only slightly, for Bombay
and Madras. A report for nine collectorates
of Bombay Presidency in 1842 found that 17
per cent of males of school-going age actually
went to school. Thomas Munros surveys for
Madras Presidency in 1826 revealed that the
corresponding proportion in this region was
25. Bombay data suggest further that when
Peshwas rule ended in Pune, the proportion
was much smaller at four.
Why was the pre-colonial Indian record
with schooling so abysmal? A possible answer
should look at the demand for schooling.
Surely, in a society which had such a well-
developed tradition of caste and community
cooperation, if the communities seriously
valued literacy, they could pool their efforts
to arrange for one. Teaching was oriented to
imparting particular craft skills. Merchants and
priests needed education in order to perform
their profession. But few people expected
to follow a craft that was not hereditary.
Therefore, if merchants and priests were
excluded, few people believed that the private
return from schooling would be attractive
enough to get their children educated, since
they were very unlikely to be able to become
merchants and priests by merely getting an
education. No public agency could possibly
see literacy or science as such to be an asset
if the prospect of using these skills to create
a different or better future was very small.
In this scenario, English education and the
introduction of science and practical learning
in government schools turned the situation
around dramatically. Schooling now became
a training ground for a whole range of jobs.
Almost all of these jobs were unconnected
with hereditary training and hereditary craft.
The expected return from schooling increased
for a larger population. A significant decline in
vernacular schools, therefore, was inevitable in
the nineteenth century, as the landlords began
to shift their children and their patronage
from their own schools to the state-aided
formal sector, in response to the considerably
enhanced social returns that formal schooling
now carried.
Aside from the expected return from
schooling, another factor that suppressed
demand for education was the very limited
diffusion of printed books. Indigenous
elementary education did not use printed
books. The learned forms of education used
manuscripts meant for limited circulation.
The literate population had limited access to
books as late as 1800. A printed book industry
was virtually non-existent. In pre-colonial
India, printed books might well have been
discouraged, or at least not encouraged,
by the political elite, as some authors have
generalized for Islamic Asia as a whole.64
While mass education was not yet a societal
priority anywhere in the eighteenth century,
contacts between printed books and practical
arts in India had nothing like the depth
attained by urban Europe in this time. Printing
technology and printed books as a medium
of instruction were almost wholly brought
into India by the Europeans and spread after
European colonization. This was a form of
positive externality from colonialism of far
greater impact than the transfer of laws and
technologies.
Generally speaking, the educational
infrastructure acquired a more formal
character in the decades before Crown rule,
and saw a replacement of moralreligious

learning with secular and scientific learning.
The outlines of a secularscientific pattern
of instruction were prepared by Thomas
Macaulay, an advisor to the Government of
India on matters of law, and implemented by
the famous Education Despatch of Charles
Wood, the Secretary of State in the 1850s
(see Chapter 9). Government control and
government investment played a role in
shaping the new system. Although government
policy initiated the change, it would be wrong
to think that the Indians were passive objects
of the new experiment. Most wealthy and
influential Indians wanted the change, and
believed that the new educational ideology
enunciated by Macaulay would give better
preparation for working in the modern
economy. Government spending on education
increased, but private sponsorship to the new
system was crucial too.
The institutionalization of education will be
further discussed in Chapter 9.
Embankments
Along with law, education, and canals, a sphere
of public goods that concerned the Company
state from the beginning of its rule was the
protection of communities and agricultural
land from the devastating effects of monsoon
floods, storm waves, and inundation, which
occurred with predictable regularity in
the Bengal delta and other coastal regions.
Construction of embankments along river
banks and seafronts had been carried out
from a long time ago in Bengal and the south-
eastern coast, which were exposed to Bay of
Bengal cyclones, a relatively heavy monsoon
rainfall, and was largely a flat terrain with low
run-off. As with the other spheres of state
activity, in this case too, new public works
had to deal in some fashion with indigenous
transition to colonialism 73
constructions and indigenous systems of
construction. Publicprivate partnerships were
tried, but proved largely unworkable and left
unintended consequences.
Embankment construction has attracted
considerable attention from historians of
colonial India.65 The literature is large and
somewhat diverse, but it does have a point of
emphasis, namely the social or environmental
costs of state projects. Several contributors to
the literature pay particular attention to the
period after 1857, and paint a dismal picture of
public works on embankments. Embankment
construction in riparian northern India is
seen to be mainly a state responsibility, and it
is suggested that the colonial state embarked
on this project on a larger scale than in times
before. The motivation for doing so was
partly economic, increasing tax income by
reclaiming land. A river bank also became a
potential source of government income by
making it possible to draw off river water
for irrigation. A further capitalistic reason
for building embankments was added when
railway construction started in earnest. In the
main, however, the motive to spend public
money on embankments was a political one,
the desire to control peasant societies. Public
works in this sphere gave rise to four kinds
of social cost. First, it degraded land. When
the dykes protected cultivated land located
on the flood plains of a river, they prevented
alluvial deposit formation and the natural
cycle of soil enrichment in the flood plains.66
Second, embankments in the long run made
floods more likely rather than less likely, by
hastening deposit formation on the riverbed.
Third, embankments, by causing waterlogging,
helped malaria spread. Fourth, the railway
embankments, which usually followed the
course of rivers, often acted as an obstacle to
the natural drainage of flood water.
74 economic history of india
Much of this interpretation cannot
be disputed. And yet, the historiography
does not tell us enough about what the
colonial situation was a change from. The
environmentalist discourse hints that the
colonial state misunderstood and thus
destroyed traditional institutions that had
presumably ensured a better record of
ecological balance. In the absence of definitive
knowledge of the pre-colonial institutional
setup, such claims cannot be verified. Further,
there is a tendency in this literature to see
all the effects of public works in a uniformly
negative light. Such practices confuse between
two very different kinds of works. In principle,
the social costbenefit of any embankment
should depend on whether the construction
is built to save lives or to reclaim land, that
is, whether its main purpose is insurance
or profit. These two goals were often in
contradiction. Embankments implied trade-
offs between saved lives and restoration of soil.
Peasants, landlords, and officers did not have
identical valuations of these effects. This issue
is largely overlooked in the environmentalist
discourse. Moreover, the embankment effect
also depended on whether the construction
was built on the rivers of the laterite uplands,
on seaboards exposed to salt water floods, or
on rivers flowing through alluvial flat lands.
Floods in the two former contexts did not
regenerate the floodplains, but damaged them
by means of sand or salt deposits.
When the Company took over the
administration of greater Bengal, they found
a wide variety of embankments that had been
constructed by different agencies.67 In the late
eighteenth century, the government pursued
a division of labour along established lines.
From the beginning of the colonial discourse
on embankments, two principles were cited
simultaneously. One of these, emphasising
the insurance aspect of such works, stated
that embankments should be a public good,
given that saving lives and assets from the
effects of disaster cannot be denied to anyone.
Embankments along the Ganges to protect the
erstwhile capital Murshidabad were repaired
by the government mainly in order to save live
rather than earn an income. With the principal
seaboard embankments, the state took up the
works without serious questions. The other
principle, emphasising the income-generation
aspect of such works, stated that, since
embankments mainly protected crops, and
therefore private income, the property owner
should pay for such works. In private estates,
the policy was to persuade the zamindars to
build and repair the works. The early public
works records (also known as pulbandy or
embankment papers) state that it was the duty
of the zamindars to secure their lands from
inundation by repairing the embankments
of the Rivers. In reality, the profit principle
was a handy cover for the states own limited
administrative control of the countryside.
In the case of the many river embankments
already in existence, the state neither had the
information nor easy transportation access.
Regulation 33 and two sections of
Regulation 8 of the Code of 1793, divided all
embankments in principle into two classes,
one being public works and under the charge
of the Collector (the principal revenue officer
of a district), and all others under the charge
of the zamindars. In the latter case, the estate
was eligible for government loans and tax
concessions. The cost thereof was adjusted
against tax obligations.
In both casesdirect public expenditure
and publicprivate partnershipstates tended
to lose interest and withdraw. The financial
history of the public works shows that in the
1830s, if construction of civil buildings is
excluded, embankments were the principal
item of government investment. However,

its importance decreased in the 1840s, when
expenditure on canals, roads, and bridges
became more important. By 1840, it was
amply clear that the publicprivate partnership
model represented in zamindari embankment
had ended in failure. Too little was built,
and the quality of what was built was poor.
Poor quality of construction in some cases
increased the intensity of floods. The problem
of partnership was an institutional one, and
arose from a conflict between individual
and collective rationality in the presence of
collective risk. Individuals facing a common
storm risk needed to address the risk by
cooperative means. And yet, cooperation
was difficult to achieve because of great
differentiation in individual capacities, risk
perceptions, valuation of benefits and costs,
and the political capacity of the individual to
free ride, that is, transfer private responsibility
to the public charge. In the end, the level of
collective risk increased. If all communities
agreed to cooperate in building a strong wall
against floods, floods would disappear. But
as some did not cooperate, the fact that the
others built embankments increased the
chances of a breach in the embankment.
Floods caused by a breach were of more
devastating consequences than floods caused
by an overtopping of the riverbank.
When in 1856 the Public Works
Department was set up to take over
commitments that had until then been the
responsibility of the military engineering
board, zamindari embankments had all but
disappeared from official statements. The
new regime hoped to establish a bilateral
statepeasantry contract. This model did not
work too well either. For in practice, there
were as many as four parties. The collector
worried about loss of revenue. The engineers
built and repaired the works. The peasant
was technically liable to pay a user fee. And
transition to colonialism 75
the railways, which had begun building their
own network of embankments to protect the
lines, interfered with drainage. In the end,
embankment construction receded in priority
in the second half of the nineteenth century,
with two notable exceptions, seaboard dykes,
and the Sundarban land reclamation project.
CONCLUSION
The eighteenth century was a period of
transition. The economy became more
exposed to the world economy. And as
colonial rule settled down, the relationship
between the prominent economic actors, the
state, and the markets was recast. In the sphere
of state expenditure on public goods, this
was an era of consolidation and experiments.
The overall effect was a mix between decline
in some spheres, and growth in some others.
Export-oriented enterprise moved from the
littoral to the interior, from the handicrafts to
the peasants, and from merchants and bankers
whose interests had been tied to bankrupt
princes to those more closely linked with the
new forms of commerce and industry. Overall,
the foundations were laid for a new economy
based on peasant exports and global industrial
enterprise. British India after 1857 was a more
homogeneous political and economic unit.
Globalization and colonialism had penetrated
deeper, working on these foundations.
How did these forces shape the extent of
measurable economic change in the region?
Chapter 3 addresses this question.
NOTES
1. C.A. Bayly, Rulers, Townsmen and Bazaars: North
Indian Society in the Age of British Expansion 17701870,
Cambridge: Cambridge University Press, 1983. Useful
surveys can be found in the introductions of P.J. Marshall
(ed.), Eighteenth Century in Indian History: Evolution or
Revolution?, New Delhi: Oxford University Press, 2003,
76 economic history of india
pp. 130; Seema Alavi (ed.) Eighteenth Century in India,
New Delhi: Oxford University Press, 2002, pp. 156;
Binay Chaudhuri, Peasant History of Late Precolonial
and Colonial India, Delhi: Pearson Longman, 2008,
pp. 49107. See especially Marshalls introduction on
comparisons between the first half and the second half of
the century.
2. Muzaffar Alam, The Crisis of Empire in Mughal
North India: Awadh and the Punjab, 170748, New York:
Oxford University Press, 1986; Bayly, Rulers, Townsmen
and Bazaars.
3. J.F. Richards, Mughal State Finance and the
Premodern World Economy, Comparative Studies in
Society and History, 23(2), 1981, pp. 285308. Muzaffar
Alam and Sanjay Subrahmanyam (eds), The Mughal State
15261750, New Delhi: Oxford University Press, 1998,
pp. 5568.
4. Irfan Habib, The Eighteenth Century in Indian
Economic History, in Marshall (ed.), Eighteenth
Century in Indian History, pp. 10019; M. Athar Ali,
Recent Theories of Eighteenth Century India, in
Marshall (ed.), Eighteenth Century in Indian History,
pp. 909.
5. Burton Stein, A Decade of Historical
Efflorescence, South Asia Research, 10, 1990, pp. 12538.
6. Bayly, Rulers, Townsmen and Bazaars.
7. James Grant, An Inquiry into the Nature of
Zemindary Tenures in the Landed Property of Bengal,
London: J. Debrett, 1791.
8. See discussion in Dharma Kumar, Private
Property in Asia? The Case of Medieval South India,
Comparative Studies in Society and History, 27(2), 1985,
pp. 34066.
9. The term used in revenue administration for
members of a group of dominant families.
10. Tapan Raychaudhuri, The Mid-Eighteenth
Century Background, in Dharma Kumar (ed.), The
Cambridge Economic History of India, Volume 2 (CEHI 2),
Cambridge: Cambridge University Press, 1983, pp. 335.
11. Tapan Raychaudhuri, The State and the
Economy: The Mughal Empire, in Tapan Raychaudhuri
and Irfan Habib (eds), The Cambridge Economic History
of India, Volume 1 (CEHI 1), Cambridge: Cambridge
University Press, 1983, pp. 17293.
12. Burton Stein, Eighteenth Century India:
Another View, in Marshall (ed.), The Eighteenth Century
in Indian History, pp. 6289.
13. Paul Axelrod, Living on the Edge: The
Village and the State on the GoaMaratha Frontier,
Indian Economic and Social History Review (IESHR),
45(4), 2008, pp. 55380. See also Frank Perlin, Of
White Whale and Country Men in the Eighteenth
Century, Deccan: Extended Class Relations, Rights
and the Problem of Rural Autonomy Under the Old
Regime, Journal of Peasant Studies, 5(1), 1978, pp.
172237; Stewart Gordon, Marathas, Marauders, and
State Formation, New Delhi: Oxford University Press,
1994; and Andre Wink, Land and Sovereignty in India,
Cambridge: Cambridge University Press, 1986.
14. Bayly, Rulers, Townsmen and Bazaars, p. 163.
15. Sumit Guha, The Land Market in Upland
Maharashtra, IESHR, 24(2), 1987, pp. 11744.
16. N.A. Siddiqui, Land Revenue Demand under
the Mughals, IESHR, 2(4), 1964, pp. 37380.
17. Tapan Raychaudhuri, The Non-agricultural
Economy: The Mughal Empire, CEHI 1, p. 306.
18. Henry S. Maine, Ancient Law: Its Connection
with the Early History of Society, and its Relation to Modern
Ideas, New York: Henry Holt, 1876; and Maine, Village-
Communities in the East and West, New York: Henry Holt,
1876.
19. Raychaudhuri, The Non-agricultural Economy,
p. 280.
20. Burton Stein (ed.), The Making of Agrarian
Policy in British India 17701900, New Delhi: Oxford
University Press, 1992, p. 9.
21. T. Kessinger, Regional Economy: North India,
CEHI 2, p. 246.
22. Raychaudhuri, Non-agricultural Production,
CEHI 1, p. 284.
23. S. Arasaratnam, The Rice Trade in Eastern India
16501740, Modern Asian Studies (MAS), 22(3), 1988,
pp. 53149.
24. B.B. Chaudhuri, Agrarian Relations: Eastern
India, CEHI 2, p. 94.
25. B.H. Baden-Powell, The Origin of Zamindari
Estates in Bengal, Quarterly Journal of Economics, 11(1),
1896, pp. 3669.
26. Ratnalekha Ray, Change in Bengal Agrarian
Society c. 17601850, Delhi: Manohar, 1979, p. 284.
27. Rajat Datta, Agricultural Production, Social
Participation and Domination in Late Eighteenth
Century Bengal: Towards an Alternative Explanation,
Journal of Peasant Studies, 17(1), 1989, pp. 68113.
28. H. Fukazawa, Western India, CEHI 2. An older
discussion can be found in P.J. Thomas and B. Natarajan,
Economic Depression in the Madras Presidency
(182554), Economic History Review (EHR), 7(1), 1936,
pp. 6775.
29. R. Saumerez Smith, Rule by Records: Land
Registration and Village Custom in Early British Punjab,
New Delhi: Oxford University Press, 1996.

30. David Washbrook, Law, State and Agrarian
Society in Colonial India, MAS, 15(3), 1981, pp.
649721; P. Robb, Law, State and Agrarian Society in
India: The Case of Bihar and the Nineteenth Century
Tenancy Debate, MAS, 22(3), 1988, pp. 31954.
31. The idea that colonial property rights reforms
predict subsequent political and economic inequality in
India has been tested by Abhijit Banerjee and Lakshmi
Iyer, History, Institutions, and Economic Performance:
The Legacy of Colonial Land Tenure Systems in India,
American Economic Review, 83(3), 2004, pp. 52548.
32. B.B. Chowdhury, Growth of Commercial
Agriculture in Bengal, 17571900, Calcutta: Calcutta
University Press, 1964; John F. Richards, The Opium
Industry in British India, IESHR, 39(23), 2002, pp.
14980; Om Prakash, Opium Monopoly in India and
Indonesia in the Eighteenth Century, IESHR, 24(1),
1987, pp. 6380. On Malwa opium, Amar Farooqui,
Smuggling as Subversion: Colonialism, Indian Merchants
and the Politics of Opium, Delhi: New Age International,
1998.
33. Tirthankar Roy, Indigo and Law in Colonial
India, EHR, 64(S1), 2011, pp. 6075.
34. Michael Greenberg, British Trade and the Opening
of China, 180042, Cambridge: Cambridge University
Press, 1969; Tan Chung, The BritainChinaIndia
Trade Triangle (17711840), IESHR, 11(4), 1974,
pp. 41131; R.K. Newman, Opium Smoking in Late
Imperial China: A Reconsideration, MAS, 29(4),
1995, pp. 76594. On the end of the trade, Thomas D.
Reins, Reform, Nationalism and Internationalism: The
Opium Suppression Movement in China and the Anglo-
American Influence, 19001908, MAS, 25(1), 1991, pp.
10142.
35. Roy Anderson, Drug Smuggling and Taking in
India and Burma, Calcutta: Thacker Spink, 1922, p. 52.
36. Rajat Datta, Merchants and Peasants : A
Study of the Structure of Local Trade in Grain in Late
Eighteenth Century Bengal, IESHR, 23(4), 1986, pp.
379402. On Bihar merchants and bankers, see Kumkum
Chatterjee, Merchants, Politics and Society in Early Modern
India Bihar: 17331820, Leiden: E.J. Brill, 1996.
37. Asiya Siddiqi, Agrarian Change in a Northern
Indian State: Uttar Pradesh 18191833, Oxford: The
Clarendon Press, 1973.
38. Stephen Dale, Indian Merchants and Eurasian
Trade 16001750, Cambridge: Cambridge University
Press, 1994.
39. Scott Levi, The Indian Diaspora in Central Asia
and its Trade, 15501900, Leiden: E.J. Brill, 2002.
40. Claude Markovits, Indian Merchant Networks
transition to colonialism 77
Outside India in the Nineteenth and Twentieth
Centuries: A Preliminary Survey, MAS, 33(4), 1999, pp.
883911.
41. The canonical work of Romesh Dutt reproduced
sections from a report on Dacca muslins (The Economic
History of India in the Victorian Age, London: Kegan Paul,
1906); R.D. Choksey on BombayDeccan is sketchy
(Economic History of BombayDeccan and Karnatak
[18181868], Poona: Gokhale Institute of Politics
and Economics, 1945); A. Sarada Raju on Madras
and H.R. Ghosal on Bengal focus on the dwindling
export trade (A. Sarada Raju, Economic Conditions of the
Madras Presidency 18001850, Madras: University of
Madras, 1941; H.R. Ghosal, Economic Transition in the
Bengal Presidency (17931833), Calcutta: Firma K.L.
Mukhopadhyay, 1966); and A.V. Raman Rao on Andhra
Pradesh was impressionistic on the point of scale of
decline in artisan production (The Economic Development
of Andhra Pradesh 17661957, Bombay: Popular
Prakashan, 1958).
42. A.K. Bagchi, Deindustrialization in India in the
Nineteenth Century: Some Theoretical Implications,
Journal of Development Studies, 12(2), 1976, pp. 13564;
Michael J. Twomey, Employment in Nineteenth Century
Indian Textiles, Explorations in Economic History, 20(1),
1983, pp. 3757.
43. Indrajit Ray, Identifying the Woes of the Cotton
Textile Industry in Bengal: Tales of the Nineteenth
Century, EHR, 62(4), 2009, pp. 85792.
44. Tirthankar Roy, Did Globalization Aid
Industrial Development in Colonial India? A Study of
Knowledge Transfer in the Iron Industry, IESHR, 46(4),
2009, pp. 579613.
45. Frank Broeze, Underdevelopment and
Dependency: Maritime India during the Raj, MAS,
18(3), 1984, pp. 42957, deals with the decline of Indian
shipping from a dependency perspective.
46. Radhika Singha, A Despotism of Law: Crime
and Justice in Early Colonial India, New Delhi: Oxford
University Press, 1998; Kim Wagner, Thuggee and
Social Banditry Reconsidered, The Historical Journal,
50(4), 2007, pp. 35376. The scholarship has explored
organized crime in the early nineteenth century from the
angles of the society and concepts of law, and does not
address the economic causes and consequences thereof.
47. I.H. Siddiqui Water Works and Irrigation
System in India during pre-Mughal Times, Journal of the
Economic and Social History of the Orient, 29(1), 1986, pp.
5277.
48. E. Thomas, The Chronicles of Pathan Kings of
Delhi, London: Thornton, p. 274.
78 economic history of india
49. The cited text from Siddiqui, Water Works and
Irrigation System.
50. Tirthankar Roy, Law and Economic
Development in South Asia 16001940, in Debin Ma
and Jan Luiten Van Zanden (eds), Law and Economic
History, Stanford: Stanford University Press, 2010.
51. Washbrook, Law, State and Agrarian Society,
MAS, 15(3), 1981, pp. 649721.
52. Erskine Perry, British Parliamentary Papers
(BPP), First report from the Select Committee on Indian
Territories; together with the minutes of evidence, and
appendix, London, 18523, p. 203.
53. R.E. Kranton and A.V. Swamy, Contracts, Hold-
up, and Exports: Textiles and Opium in Colonial India,
American Economic Review, 98(3), 2008, pp. 96789;
Bishnupriya Gupta, Competition and Control in the
Market for Textiles: Indian Weavers and the English East
India Company in the Eighteenth Century, in Giorgio
Riello and Tirthankar Roy (eds), How India Clothed the
World: The World of South Asian Textiles, 15001850,
Leiden: Brill, 2009, pp. 281308.
54. Perry, BPP, First report from the Select Committee,
pp. 22021.
55. Samuel Schmitthener, A Sketch of the
Development of the Legal Profession in India, Law and
Society Review, 3(23), 1968, pp. 33782. The cited
sentence appears on p. 354.
56. William Adam, Third Report on the State of
Education in Bengal; including Some Account of the State
of Education in Behar, and a Consideration of the Means
Adapted to the Improvement and Extension of Public
Instruction in Both Provinces, Calcutta: Bengal Military
Orphan Press, 1838.
57. BPP, Appendix to the Report of the Indigo
Commission, 1861 (Paper No. XLV), pp. 41221. The
numbers cited in this paragraph are from the summary of
Adams report presented in this source.
58. Adam was often misquoted by proponents of
vernacular education in his time, and by later historians.
A remark that every village had a school of some sort
led some administrators to offer an estimate of 100,000
schools in Bengal. Multiplied by a generous student-per-
school estimate, the figure produced an attendance ratio
that favourably compares with any country in the world,
K.N. Panikker, Cultural Trends in Precolonial India: an
Overview, reprinted in S.I. Habib and D. Raina (eds),
Social History of Science, New Delhi: Oxford University
Press, 2006, p. 18. See also Zaheer Baber, The Science of
Empire: Scientific Knowledge, Civilization, and Colonial
Rule in India, Albany: State University of New York, 1996,
for a similar claim. Such claims were an exaggeration and
inconsistent with the numbers produced in the report.
59. Adam, BPP, Third Report on the State of
Education, p. 29.
60. Letter from A. Duff to the Indigo Commission,
Appendix III, East India (Indigo Commission), Report of
the Indigo Commission, London, 1861, pp. 415, 420.
61. D.H. Emmott, Alexander Duff and the
Foundation of Modern Education in India, British Journal
of Educational Studies, 13(2), 1965, pp. 1609.
62. Statistics of education for Purnia district, cited
in Panikker, Cultural Trends, in Habib and Raina (eds),
Social History of Science, p. 18.
63. Anonymous, Annals of the Bengal Presidency,
Calcutta Review, 15(1), 1851, p. 251.
64. Lynn White, Jr., Technology Assessment from
the Stance of a Medieval Historian, American Historical
Review, 79(1), 1974, pp. 113.
65. Rohan DSouza, Drowned and Dammed: Colonial
Capitalism and Flood Control in Eastern India, New Delhi:
Oxford University Press, 2006; P. Singh, The Colonial
State, Zamindars and the Politics of Flood Control
in North Bihar (18501945), IESHR, 45, 2008, pp.
23959; C. Hill, River of Sorrow: Environment and Social
Control in Riparian North India, 17701994, Michigan:
Association For Asian Studies, 1997.
66. See, for example, DSouza, Drowned and
Dammed; Singh, The Colonial State; Iftekhar Iqbal, The
Railways and the Water Regime of the Eastern Bengal
Delta, c 18451943, Internationales Asienforumpp, 38,
2007, pp. 32952; A. Sheel, Long-term Demographic
Trends in South Bihar: Gaya and Shahabad Districts
18111921, IESHR, 29, 1992, pp. 32348; M.
Chakrabarti, The Famine of 18961897 in Bengal:
Availability or Entitlement Crisis?, Hyderabad: Orient
Longman, 2004, pp. 589.
67. The remaining part of this section draws on
Tirthankar Roy, The Law of Storms: European and
Indigenous Response to Natural Disasters in Colonial
India, Australian Economic History Review, 50(1),
2010, pp. 622. See this paper for fuller references and
complete citations.
3
Growth and Structural Change
18571947
W hen discussing colonial India, it
is useful to keep in mind three
features that defined the entire period.
Structural features include the overwhelming
importance of natural resources and labour to
economic growth and welfare. Land-intensive
agriculture, labour-intensive handicrafts, and
modern industry or plantations intensive in
natural resources, were the main livelihoods
throughout this period and beyond. Global
features consider the fact that Indias economy
was more open during this period compared
to periods before and after colonialism,
and that India participated fully in the first
globalization of the nineteenth century, which
saw a rapid integration of the world in respect
of commodity trade, capital flows, and labour
migration. India participated in a global
revolution in transport and communication
too, which for India included especially the
Suez Canal, the railways, and the telegraph.
The third set of features can be called colonial
features. For example, the fact that India was
a colony was evident in the large remittances
that the government of India paid to the
government in Britain. The structural features
of Indias economy changed rather slowly.
For example, Indias economy was primarily
agrarian before, during and since colonial
rule. However, the global and the colonial
features shifted dramatically after 1947
(Chapter 12).
This chapter presents a statistical
description of how these three features
structural, global and colonialshaped, in
mutual interaction, the economic growth in
the region. The opening section looks at rates
of economic growth. The next section presents
an explanation for observed rates of growth.
The four sections that follow, deal with trade,
savings and investment, government accounts,
and balance of payments, in that order.
80 economic history of india
MEASURING CHANGE
National Income
Official estimates of national income
for colonial India do not exist. Although
contemporary estimates do exist (see Box 3.1),
not until the 1960s did reasonably reliable
historical national income statistics become
available (see Box 3.2). There are differences
amongst these later research works. All things
considered, S. Sivasubramonians series is
perhaps the most detailed and reliable. Most
of these estimates, however, begin from 1900
or thereabouts. For the quarter century before
that date, we have somewhat less detailed
estimates from various sources.
What economic historians observe as
Indias national income in the period 190047
is the expression
Gross Domestic Product or GDP + net factor
income from abroad + taxes.
This is the national income inclusive of
taxes. For periods prior to 1900, the measures
vary. Table 3.1 presents estimated growth
rates of national income for different sub-
periods. Different authors produced these
estimates using slightly different methods.
But the basic conclusion is not too sensitive
to the variations. Between 1865 and 19205,
the growth rates of total income and average
income were positive, and attained quite
Table 3.1 Growth Rates of Real National Income
National Income
186085* 1.76
18851900** 1.01
190014*** 1.45
191447*** 1.14
Sources: * M. Mukherjee, National Income of India, Calcutta: Firma KLM, 1965; ** Heston, National Income, in CEHI 2;
*** S. Sivasubramonian, National Income of India in the Twentieth Century, New Delhi: Oxford University Press, 2000.
respectable levels by international comparison.
Between 19205 and 1947, national income
grew at approximately 1 per cent per year,
which rate, when adjusted for population
growth, yielded a near-zero rate of growth of
average income. The pace was unquestionably
slow, in relation to what was needed for a rapid
improvement in living standards, in relation to
growth rates of post-Independence India, and
by selective international comparison. From
now on, the two sub-periods will be referred to
as pre-war and interwar, respectively.
By contrast with income, growth rates of
employment did not change between these
two regimes. Average annual rate of growth of
employment was 0.5 per cent between 1875
and 1900, and 0.5 per cent between 1900 and
1946. However, the same rate in two periods
had different meanings because the growth
rate of output and income decelerated.
The first lesson from national income
statistics, therefore, is that a pre-war phase
of expansion had come to an end shortly
after World War I, coinciding with a decisive
upward turn in the population curve. The
point about a trajectory shift needs to be
stressed. This can be illustrated further with
the help of Figure 3.1, and with reference
to other indices relating to commerce,
infrastructure, mining, and agriculture. The
slowdown was absent in industry and finance
(Tables 3.2 and 3.3). Why did the trajectory
shift? A simple answer to this question can
Population Per capita Income
0.53 1.23
0.55 0.46
0.45 1.00
1.08 0.06
 growth and structural change 81

Figure 3.1 Real Income, 18681946 (1868 = 100)

Source: Alan Heston, National Income, in CEHI 2, pp. 376462.

Table 3.2 Regimes of Growth and Stagnation

1891 1921 1938

Real National Income

Total 70 100 126
Per capita 78 100 101
Agriculture 67 100 100
Industry 100 175
Infrastructure
Acreage irrigated 52 100 123
Railway mileage per capita 51 100 110
Postal articles handled per capita 27 100 70
Real value of telegraphs sent per capita 55 100 103
Employment
Factory 25 100 137
Total 805 100 10510
Foreign Trade
Real value of export 76 100 96
Real value of import 72 100 95
Financial Development
Real value of bank deposits 29 100 183
Resources
Cultivated land (m acres) 56 100 103
Production of coal (m tons) 11 100 156
Population 92 100 125

Source: Estimated from various sources, including Statistical Abstracts for British India.
82 economic history of india
Table 3.3 Further Comparisons between
Regimes of Growth and Stagnation
(% change in index between pairs of years)
190025 192550
Industrial production 141 143
Mining activities 222 98
Commercial activities 185 54
Government services 33 29
Railway and communications 129 25
Agricultural production 8 3
Source: K.M. Mukerjis estimates, cited in Mukherjee,
National Income, p. 67.
be found by comparing growth rates of
agriculture and non-agriculture.
Agriculture and Non-agriculture
Agricultural expansion was the mainstay
of economic growth in the pre-war period.
Agricultural stagnation was the main reason
why economic growth declined in the interwar
period. Real agricultural income increased by
33 per cent between 1870 and 1914. In the
next 30 years, the growth was approximately
3 per cent. In the pre-war period, world
demand for peasant exports was rising, and
real agricultural income and cultivated land
area grew (Table 3.4, see also Figure 3.1).
Further, terms of trade between export,
consisting mainly of what the peasants sold
abroad, and import, consisting mainly of
mass consumption goods like cotton cloth,
was increasing, which meant that by selling
a constant basket of goods the peasant could
access an expanding basket of consumption
goods. The ratio of agricultural price to import
price rose even more (Table 3.5).
After 1925, world agricultural trade entered
a crisis. Added to that, a resource crisis had
begun to unfold within India. Population
growth rate, which had been in the range
0.50.8 per cent per year between 1881 and
1921, exceeded 1 per cent in the 1920s and
accelerated from then on. Only a few years
before this demographic turning point, the
agrarian turning point had been reached.
Cultivated land area stopped growing from
about 1915 (Table 3.4). Average product
per acre being low and stagnant, the average
product per person and per capita food
availability began to fall (Table 3.6). The world
demand for Indian agricultural exports was
beginning to stagnate, and imported goods
were becoming costlier in terms of export and
agricultural goods (Table 3.5). The rural crisis
took a serious turn in the years immediately
after the Depression. The Depression raised
debt and rent burden on the peasants, and
forced liquidation of their assets. M.K.
Gandhis ability to speak for the embattled
peasants was a source of his mass appeal in the
1930s.
In the non-agricultural occupations,
whereas growth rates varied, such an acute
crisis was missing. Though jolted by the
Depression, industry escaped stagnation. As
far as we can measure, the index of industrial
production in the modern factories was
increasing at a comfortable pace both before
and after World War I. There were two
types of industry: large-scale industry and
small-scale industry. Large-scale industry
consisted of mills employing wage labour and
machinery. Small-scale industry consisted
of artisan households and small factories.
GDP in the larger factories increased at rates
over 4 per cent per year between 1900 and
1947. Small-scale industry grew at less than
1 per cent. Within the tertiary sector, the
contribution of government administration
grew at over 2 per cent per year. Three other
major componentscommerce, transport,
and real estatealso expanded quite rapidly
at rates like 1.5 per cent. Thus, there were
 growth and structural change 83

Box 3.1 Early Estimates of National Income

The British government in India did not publish or produce estimates of Indias national income. The
first major initiative occurred late, in the 1930s. There were many individual research studies, however,
typically producing a measure of total and per capita income for one year. Some of the earliest estimates
were driven by administrative needs, or by political ones, such as the desire to show British rule in good
or bad light. More scholarly attempts, especially from the 1930s, were motivated by the need for simple
statistical representations of a large and complex economy. Politics apart, both sets were constrained by
serious data problems. Three of these constraints were perhaps the most critical.
The first was deficiency of statistics on the native States, territorial units outside British India but
under British control, and for most purposes part of the larger Indian economy. In 1901, the States
contained over 40 per cent of the area and 20 per cent of the population of the Indian subcontinent. In
several cases, definition or coverage varied between the States and British India. The second problem was
the predominance of informal activities that did not keep written records or accounts. These activities
were captured only indirectly or not at all by the official statistical sources. Third, official statistics had a
bias for activities that generated revenue. Thus, agriculture was recorded better than small-scale industry,
and foreign trade better than domestic trade. The poor coverage of domestic trade meant, in turn, poor
database on prices.
Uniformly, the early estimates used land-use data to estimate agricultural production, and in turn,
income. From the late nineteenth century, factory production was also approximated by means of
production data. Almost all other activities were estimated by the income method. The major attempts to
estimate national income, when plotted on a graph, look like this.

Note: B-B: Baring Barbour, VM: C.N. Vakil and S.K. Muranjan, WJ: P.A. Wadia and G.N. Joshi, FS: G. Findlay-Shirras,
SK: K.T. Shah and K.J. Khambatta, MC: Ministry of Commerce, CSO: Central Statistical Organisation.

The graph presents some surprises. For one, bitter rivals on matters of statistics and economic growth,
Lord Curzon and William Digby, end up as neighbours. Their nominal income estimates were wide apart,
but the two adjacent years saw large price movements, which wiped out the differences. For another,
a clear upward trend emerges in the data points, despite the great ideological divide that separated
Atkinson from Digby, Naoroji from Curzon. And yet, this result is a spurious one. All that the trend
reflects is that the quality and coverage of non-agricultural income statistics improved over time. For that
very reason, it is impossible to use these early point estimates to read trends in national income, even
though as snapshots these estimates do have value.
84 economic history of india

Table 3.4 Agricultural Growth, 18651940 (1865=100)

Agricultural Agricultural NDP in Net Sown Acreage Agricultural

Export Export Agriculture (million acres) Export/Total
(million Rs) (million Rs at (billion Rs) Export (%)
1873 Prices)
1865 590 513 15.5 n.a. 87
1880 526 438 17.6 <120 79
1895 783 631 18.9 170 72
1910 843 570 25.4 209 69
1925 2400 854 22.8 207 64
1940 789 537 24.7 209 48

Sources: Sivasubramonian, National Income; Statistical Abstracts of British India, various years.

Table 3.5 Terms of Trade

ExportImport AgricultureNon-agriculture AgricultureImport

18615 84.3 101.0 86.6
18715 105.3 110.4 105.8
18815 117.6 110.4 126.3
18915 127.9 135.8 146.2
19015 120.3 140.2 140.5
191115 123.6 147.4 156.7
19215 110.8 126.4 128.3
19315 95.8 116.8 104.2
19415 136.0

Source: M. McAlpin, Price Movements and Economic Fluctuations, in CEHI 2, pp. 878905.
Note: Five year averages.

Table 3.6 Food Availability

Net Food Production Net Import (million Population (millions) Per Capita Availability
(million tons) tons) (oz. per day)
19004 55.6 1 289 18.6
191014 61.9 2.0 314 18.8
19204 58.4 0.8 312 18.6
19304 57.7 1.2 348 16.6
19404 57.6 0.5 397 14.4

three powerful positive forces driving
the non-agricultural sector. These were
industrialization, growth of the government,
and growth of long-distance trade. The
experience of the non-agricultural sector was
tempered by the slow growth of real income in
small-scale industry. The trend should be read
with caution. Labour productivity increased
in this sector at the same time as employment
fell and income increased slowly (Table 6.3).
Strong evidence on productivity growth comes
from particular large industries (see Chapter
6, and Table 6.4). These firms, in short,
experienced a structural change that reduced
the need for labour per unit of output.
 growth and structural change 85

Table 3.7 Growth of Non-agricultural Sectors

Industry Other Non-agricultural Sectors

Large-scale Small-scale
NDP
1900 298 1400 4237
1925 845 1838 6938
1946 2173 1732 8979
NDP per worker
1900 2249 489 224
1925 1976 727 355
1946 2812 514 375

Note: NDP per worker in Rupees at 19389 prices; NDP in Rs million.

The inter-sectoral shifts underlying the and trends in employment share. In short,
change in the growth regime show up more movements of people between agriculture and
clearly in the composition of national income non-agriculture occurred more slowly than did
and employment. changes in their relative productive power.
National income can be seen as an
Composition of Income and Employment aggregate of different types of goods and
services. Conventionally, four main types are
Between 1900 and 1947, the share of non- distinguished: consumption goods, capital
agriculture in national income was increasing goods, net export, and goods and services
(Tables 3.7 and 3.8). The extent of increase purchased by the government sector. This
was small in the first quarter of the century, break-up is shown in Table 3.10. The table
and greater in the second quarter. The shows that colonial India was a net exporter,
employment shares of major sectors show had a small government, invested little, and
no significant trend. What direction there was characterized by a high proportion of
was between sub-periods cannot be trusted consumption in national income.
to be completely authentic, given the many National income per head captures an
difficulties of reading the occupational average. To make sense of what people really
statistics of the census. Still, there is some sign earned and how much they consumed,
here that the employment shares changed we need to look at wages and earnings. Of
in the same direction as the income shares
(Table 3.9). Were good industrial income Table 3.8 Sector Shares in National Income (%)
data available for 1875 and 1900, we might
find that agriculture gained and industry lost 1900 1925 1946
between 1875 and 1900, since the period saw Agriculture 51 42 40
increased peasant exports and possibly some Industry 11.5 13 17
loss of craft employment. On the other hand, Modern 2.5 5 11
Small-scale 9 8 6
agriculture lost and industry gained between
Others 37.5 45 43
1925 and 1946, in terms of both income Total including other sources 100 100 100
and employment. But there was no precise
overlap between the trends in income share Source: Sivasubramonian, National Income of India.
86 economic history of india

Box 3.2 Measurement of National Income in Colonial India

The standard series of national income derive from research done in the 1960s and 1970s, especially by S.
Sivasubramonian, George Blyn, Alan Heston, Moni Mukherjee, and Arun Banerji.
Production statistics is quite detailed in the case of agriculture, plantations, mining, and modern
factory-based industry. For these sectors, and house property, the production method is followed. The
coverage and quality of agricultural statistics varied between British India and the States, within British
India according to the system of assessment and collection, and between crops. Adjustments are needed
for these deficiencies. Apart from imperfect coverage, it has been said, that the method by which official
production figures were arrived at from crop-cutting experiments carried systematic downward biases
in yield per acre. The production figure was derived by multiplying the total cropped area, which came
from land-use statistics, with an estimated yield. The official method of estimating yield was to multiply a
periodically revised figure of a normal or standard yield with a condition factor, an index of the quality
of the season. It has been suggested that the index of seasonality tended to be biased downward, and to
that extent, depressed growth rates. The problem of a bias has been debated. The consensus seems to be
that, a downward bias in the seasonality index cannot be generalized for all of India, and that, if there was
such a bias it was offset by a possible overestimation of the standard yield (see also Chapter 4).
For all sectors other than agriculture and modern industry, the income method is followed. Except
in public administration, employment is multiplied with standard earnings. Employment comes
from the decennial population censuses, which changed the definition of worker frequently. The
definitional changes were primarily an effect of having to deal with a large number of persons who
were not specialized and/or who combined paid and unpaid work. Prevalence of family labour and the
household made the problem worse, such that estimating womens participation in commercial work
and interpreting changes in womens participation posed the most difficult challenges. But the problem
also appears with some rural occupational groups who seem to have depended on a portfolio of labour
services. In any case, the definitional changes make the censuses a problematical source to use without
substantial reclassification. The earnings dataset poses challenges too, for example, in small-scale
industry, which employed over 10 million persons in the early twentieth century. The practice has been
to collect wages and earnings from a number of surveys and put this dataset together to draw a time series
of average wages. The practice remains controversial if unavoidable.
Foreign investment and invisibles derive largely from Banerjis work on the balance of payments.
Readings: Arun Banerji, Indias Balance of Payments, Bombay: Asia, 1962; George Blyn, Agricultural
Trends in India, 18911947: Output, Availability, and Productivity, Philadelphia: University of
Pennsylvania Press, 1966; Alan Heston, National Income, in CEHI 2, pp. 376462; M. Mukherjee,
National Income of India, Calcutta: Statistical Publishing, 1965; S. Sivasubramonian, National Income of
India in the Twentieth Century, New Delhi: Oxford University Press, 2000.

particular interest are the poor, or the wage
earners, for they formed the vast majority of
the earners.
Levels of Living
In Mughal India, a small administrative and
military elite enjoyed a large share of the
income of the empire. In British India too
there was an officer elite that was paid high
salaries, but their share of national income
was smaller, and shrinking, because there
was, at the same time, a more rapid increase
in incomes connected with private commerce
and industry.
 growth and structural change 87

Table 3.9 Sector Shares in Workforce (%)

1875 1900 1925 1946

Agriculture 73.4 74.9 76.5 74.8
Industry 13.6 10.6 9.0 9.6
Modern 0.2 0.5 1.2 1.8
Small-scale 13.4 10.1 7.8 7.8
Others 13.0 14.5 14.5 15.6
Workforce (%) 100.0 100.0 100.0 100.0
Workforce: millions 117.7 131.3 138.3 158.2

Source: Heston, National Income, in CEHI 2 for 1875; Sivasubramonian, National Income, for the other years.

Table 3.10 Components of National Income, 190046

190113 19309 19406

National income 100.0 100.0 100.0
Net export of goods and services 3.4 1.4
Investment 6.9 9.3 7.3
Purchases by the government 5.4 3.5 4.3
Consumption 84.3 85.7

Source: Adapted from data available in Sivasubramonian, National Income.

Notes: Government expenditure is assumed to equal current revenue. Consumption is estimated as a residual.

At the other end, colonial India saw, if not
the genesis, at least a marked intensification
of poverty (Table 3.12). Such an inference
can be drawn from the fact that real wages of
most types of unskilled or semi-skilled manual
labour did not rise quickly or at all, even as
the number of such wage earners increased
steadily. In particular, from a year or two after
the Depression, real wages in agriculture
stagnated, and the stagnation continued for
the next 30 years. In 1875, a family of four
would have needed Rs 100 a year to purchase
the consumption basket required to be above
the official poverty line defined in 1973.
The average income of a rural labour family
was between one-third and half this norm
(assuming 180260 days of work per year, and
one earner per family). The distance between
average income and the poverty line did not
change significantly in colonial India, or the
poorest did not become poorer, but more
people joined their ranks.
There can be two explanations for stagnant
wages over relatively shorter periods (as
opposed to the long run, in which wages
should maintain a stable relationship
with labour productivity). First, while
agricultural growth raised demand for
labour, the destruction of artisan industry
reduced demand for labour. As unemployed
artisans crowded rural labour markets, real
wages in both sectors stagnated. A second
hypothesis is that many pre-war wages were
set by custom and not by negotiation, and
therefore responded poorly to the rise in food
prices in the last quarter of the nineteenth
century. Which one of these explanations
is the more plausible one? If indeed the
wage stagnation resulted from unemployed
artisans crowding rural jobs, and if artisan
88 economic history of india

wages were higher than agricultural wages, we
should expect artisan wages and agricultural
wages to converge. But we do not see such a
convergence. The wage gap between the two
types of workers remained wide. In fact, the
gap widened (calculate the ratio of the two
wages in Table 3.11). Further, direct evidence
of mobility of labour between industry and
agriculture remains scarce. The second
explanation, therefore, seems preferable. If
pre-war wages were set by tradition, the force
of tradition weakened in the interwar period.
Agricultural wages became more flexible than
before. At the same time, artisan wages rose
due to expansion in small-scale industry. The
mill wages charted a different course all along.
Wage figures for periods before 1900 remain
scarce. From what is available, the trend

Table 3.11 Real Wages (1900=100)

Urban Artisans* Agricultural Labourers Mill Workers**

1875 114.2 136.3
1895 108.9 128.8
1900 100.0 100.0 100.0
1916 103.7 107.1 114.7
1920 103.2 74.1 130.1
1925 181.3 129.7 180.6
1937 157.6 107.1 237.4

Sources: Atkinson, Statistical review; Sivasubramonian, National Income; see also sources cited below Tables 4.12 and
7.5.
Notes: * These wages usually refer to the average daily earnings of three categories of general purpose artisans: black-
smiths, carpenters, and masons. ** Bombay cotton mill workers average monthly wage.

Table 3.12 Intensity of Poverty among Agricultural Labourers, 18751961

Annual per Head Income* Poverty Line** 12 Number of Agricultural
Labourers (millions)
1 2 3 4
1875 17.5 23.8 0.74 14.2 (1881)
1900 24.0 34.4 0.70 17.0
1921 36.5 80.8 0.45 18.6
1931 29.5 43.5 0.68 19.9
1951 120.5 177.9 0.68 22.5***
1961 110.4 210.0 0.53 31.5***
Sources: The 192131 price segment is taken from M. McAlpin, Price Movements and Economic Activity (1860
1947), in CEHI 2. Subsequent prices are from Central Statistical Office, reported in India, Economic Survey, New Delhi:
Ministry of Finance, various years.
Notes: The table uses the average annual money wages of agricultural labourers estimated in Table 4.12 (for sources and
methods of construction of the dataset). The annual wages are converted into a per capita earning of agricultural labour
families by assuming there are two earners and four members. The poverty line is the Planning Commission benchmark
of per capita consumption expenditure for 19734. Both money wages and the benchmark are deflated backward by
using a variety of food price series. The earliest price set is taken from http://gpih.ucdavis.edu/, and uses rice price in
Bengal (18751921).

seems to be that of a slow rise rather than a
decline. In the interwar period, a steadier rise
occurred, thanks largely to a strong trade union
movement.
To sum up the story so far, the growth
trajectory shifted between the pre-war and
the interwar periods, mainly due to stagnation
in agricultural production. The effect
was worsening poverty and reduced food
availability. Did the trajectory shift because of
the working of external forces like the world
economy and colonialism, or did it shift in
response to local circumstances?
EXPLAINING CHANGE
India experienced globalization in two
principal ways. The price of manufactures,
chiefly cloth, fell, inducing an extent of
de-industrialization, whereas the demand
for agricultural goods exported from India
increased, accompanied by sustained upward
pressure on agricultural prices. This pattern
was consistent with the prediction of trade
theory, for India in 1850 had abundant land.
And, while the region was not labour scarce,
there was a scarcity of capital and skilled
labour needed for modern industry to develop.
This simple relative price story fails
to explain the significant growth of large
factories, and the limited revival of artisanal
industry in the late nineteenth century
(Chapters 6 and 7). In order to explain these
anomalies, we need to add complexities to
the trade model. We should, for example,
consider product differentiation, and
knowledge spillovers that occur in the course
of integration in factor markets, variables that
receive emphasis in new theories of trade and
growth.1 Product differentiation and consumer
preference sustained demand for specific
skills, including artisanal skills. The impact of
imported machine-made goods was muted,
growth and structural change 89
at times creative, upon the manufacture of
non-standard niche-market consumption
articles, especially those that demanded some
form of craftsmanship. On the other hand,
the knowledge exchange that Indias colonial
connection facilitated, explains in large
measure the growth of factories despite the
high costs of capital and skilled labour. A great
deal of the pre-war drive in modern industry
derived from Indias colonial links (Chapter 7).
In the interwar period, the growth process
faced three new difficulties. First, agriculture
experienced exhaustion of land and fall in
external demand. All along, levels of land yield
had remained small and almost unchanging,
and despite some effort and limited successes,
peasants and the state failed to overcome the
yield barrier. Second, in modern industry, the
positive potentials of colonial links became
weaker from the 1920s. As British economic
growth slowed, the reduced attraction of the
colonial connection for Indian businesses gave
rise to the demand for a less empire-oriented
trade regime. Indian business, including
artisans, became more inward looking in
seeking markets or materials. Ironically, at the
same time, domestic consumer demand was
beginning to slow due to a slowing down of
the agricultural sector. The dominant political
opinion in Britain wanted preferential trade
treaties to extend to all parts of the empire, in
response to the rich worlds attempts to build
competitive tariff walls around them. Such a
state of affairs saw Indian and British interests
coming into increasing conflict. Economic
nationalism was dominated by these, at times
acrimonious, conflicts that reflected a tortuous
decolonization of the Indian economy. And
third, population growth accelerated from
the 1920s. With agricultural growth stuck at
near-zero levels, the demographic transition
put pressure upon the average product in
agriculture, and in turn, upon real wage.
90 economic history of india
To explore the story further, we need to
add some details on patterns of trade, savings
and investment, public finance, and balance of
payments.
GLOBALIZATION AND PATTERNS OF
TRADE
There are four general features of the history of
foreign trade in colonial India: (a) increasing
openness and trade dependence in the
nineteenth century, (b) initial specialization in
agricultural export, (c) gradual shift away from
agriculture as industrialization progressed,
and (d) initial Britain-centred trade tilted
significantly towards East Asia in the interwar
period.
Assumption of political power by the
British Crown (1858) and the opening of the
Suez Canal (1869) integrated India closely
with a now Europe-centred world economy.
Ocean freight rates on bulk goods from India
became one-third between 1873 and 1893. By
the latter date, more than two-thirds of export
from India passed Suez. Between 1880 and
1925, the real volume of trade to and from
India doubled. More that half of Indian exports
consisted of agricultural goods such as grains,
seeds, raw cotton, and raw jute. The age of the
artisan had ended, and the age of the peasant
arrived.
Foreign trade as a ratio of national income
increased significantly from the late nineteenth
century. Total foreign trade (export + import)
expressed as a ratio of national income
increased from possibly less than 10 per cent
in the 1860s to about 20 per cent about 1914.
These percentages are comparable with that of
rapidly growing economies. Export-to-income
ratio was about 89 per cent in 190039, with a
drop around the time of the Great Depression.2
The growth of the tertiary sector consisting of
trade, commerce and finance reflected Indias
openness.
The composition and direction of trade
changed in the colonial period. World War
I was a watershed. As Table 3.13 shows,
if the major items of export are classified
into three broad groupspeasant exports,
semi-processed natural resources, and
manufactured goodsthen the pre-war period
saw mainly a great burst of peasant exports.
But in the interwar period, as industrial
capability improved in a number of directions,
manufactured exports increased. The same
general tendency also altered the composition
of imports in favour of machinery and
intermediate goods. Limited tariff protection
had been present from the mid-1920s. Import
substitution was strengthened in the interwar
period. The most important sector receiving
protection was cotton textiles.
In the direction of trade, dependence on
the Chinese and British markets was initially
large, but declined in the pre-war period (Table
3.14). The importance of Britain increased
somewhat in the interwar period mainly
due to preferential tariffs under the Imperial
Preference treaty (1921). Indias dependence
on Britain as a source of imports was almost
total in the mid-nineteenth century, and
changed relatively little until World War I. In
the interwar period, there was a drop in Britains
share, and increase in those of Japan, the USA,
Germany and Italy. The interwar period, in
short, was one of diversification both in Indias
capability and in its trade partners. The change
in direction of trade reflected a bigger shift in
regional trade pattern and industrialization. A
recent scholarship has argued that in the early
twentieth century, intra-Asian trade expanded
while Europes dominance in Asian trade
reduced. The intra-Asian trade was based on
the emergence of the modern cotton textile
 growth and structural change 91

Table 3.13 Composition of Trade, 18501935 (percentages of total export or total import)

18501 191011 19356

Export
Agricultural (raw cotton, raw jute, foodgrains, seeds) 26.2 55.0 29.5
Semi-processed goods (indigo, opium, hides, and skins) 42.8 12.5 neg.
Manufactured goods (tea, jute, cotton textiles) 4.8 19.3 28.1
Import
Cotton textiles 40.5 33.5 15.3
Machinery neg. 3.7 11.1
Intermediate goods (mineral oil, metals) 16.8 13.8 13.3

Source: K.N. Chaudhuri, Foreign Trade and Balance of Payments, in CEHI 2, pp. 80477.

Table 3.14 Direction of Foreign Trade, 18501940 (percentages of total export or import)

18501 191011 19401

Export from India to

Britain 44.6 24.9 34.7
China 35.0 9.2 5.3
Japan neg. 6.4 4.8
USA neg. 6.4 13.9
Import of India from
Britain 72.1 62.2 22.9
China 8.6 1.8 1.8
Japan neg. 2.5 13.7
USA neg. 2.6 17.2

Source: See under Table 3.13.

industry in Japan. A three-way cotton-oriented investment inflow. Deposits and securities,

trade and division of labour between India,
China and Japan emerged as a result. In turn,
intra-Asian trade stimulated primary goods
exports from China and Southeast Asia.3
If trade created incomes, how was this
income saved and invested?
SAVINGS AND INVESTMENT
Sustained economic growth requires a
sufficiently high proportion of investment in
national income. Investments are financed
partly from domestic savings in bank deposits
and securities, and partly from foreign
however, were not the only form of assets
in which Indians saved. A substantial part
of savings consisted of precious metals. In
addition, smaller parts of savings went as
investments abroad, and as purchases of
government bonds in India.
What constitutes a sufficiently high rate
of savings and investment may be debatable.
But there cannot be any debate over the fact
that these rates in colonial India were small.
Net capital formation and savings was 24
per cent of national income in the first half
of the twentieth century (Table 3.15).4 Table
3.15 reveals furthermore that the proportion
92 economic history of india

Table 3.15 Estimates of Investment, 190146

190113 19309 19406

Per cent of gross capital formation*

Gross capital formation 100.0 100.0 100.0
Construction 61.2 67.5 70.2
Machinery 29.8 29.2 28.5
Agriculture 2.0 3.5 4.6**
Other 27.8 25.7 23.9
Inventory 9.0 3.3 1.4
Public sector 32.7 22.2 18.0
Private Sector 67.3 71.8 82.0
Per cent of national income****
Gross capital formation 6.93 9.35 7.30
Net capital formation*** 4.00 2.84 2.12
Public investment 2.23 2.084 1.32

Source: Raymond W. Goldsmith, The Financial Development of India, 18601977, New Haven and London: Yale
University Press, 1983, Tables 110 (p. 20) and 29 (p. 80).
Notes: *This is defined as domestic investment plus foreign investment inflow. In fact, the 190113 figures relate to to-
tal capital formation, whereas the 19406 ones relate to domestic capital formation. However, by this time, the inflow
of foreign capital had become small. **Rural in the source. ***Net capital formation is gross minus depreciation. 4. The
national income (Gross National Product) figures used are different from Table 3.1 above. But the resultant differences
in the ratios are small, usually less that .5 per cent. ****A study by M.J.K. Thavaraj estimates a slightly lower percentage
for all three periods. The differences are small, and its source is not immediately clear. The difference can be due to (a)
deliberate exclusion of transfer of assets between private and public sectors in Thavarajs estimates, or (b) due to the
national income figures used. The rather crude income figures generally included the Indian states, whereas the public
investment figure did not. See his Capital Formation in the Public Sector in India: A Historical Study, 18981938, in
V.K.R.V. Rao (ed.), Papers on National Income and Allied Topics, Delhi: Allied Publishers, 1962.

of investment in machinery, the percentage of
investment in agriculture, and the share of the
government in aggregate investment, were all
relatively small and in some cases in decline. A
curious feature is the rather high proportion of
depreciation or replacement expenditure (note
the difference between gross and net capital
formation). Net foreign private investment was
small, well below 1 per cent of national income.
Table 3.16 presents data on savings. The
proportion of income going to the purchase of
gold and silver deserves special attention. In
the normal course, and in any good agricultural
year, Indians purchased gold and silver in large
quantities. Among the few exceptions to this
normal behaviour were the years of the Great
Depression and the two World Wars. During
the wars, gold import was restricted legally.
During the Depression there was net export.
Administrators routinely accused the peasants
of improvidence. In good times, the peasant
spent lavishly on a daughters marriage and on
gold jewellery. In bad times, the peasant had to
mortgage land at high interest rates. The more
astute of colonial officials understood that
there was an element of insurance behind such
improvidence. Climatic risks were excessive,
and affected expected consumption. In the
absence of insurance markets, precious metals
were the best available store of value. Because
these metals were traded globally, their prices
varied in a narrower band than the prices of
nearly everything that sold in the villages. In
other words, climatic and price risks depressed

Table 3.16
Per cent of National Income
Financial saving*
Net accumulation of gold and silver
Source: Goldsmith, Financial Development, pp. 212 and 80.
Note: *Financial saving consists of deposits and securities with the private sector, foreign investment outflow, and purchase
of government bonds in India.
expected incomes from investment projects,
and thus, reduced the demand for productive
investment.
All other forms of saving were essentially
lending by savers to potential investors. But
those who bought metal hoarded it. Except to
a limited extent, when metals were mortgaged
against loans, these did not generate new
investment. Thus, metal was a form of
leakage from funds available for productive
investment. Net gold and silver transactions
took a toll of at least two per cent from the
potential aggregate investment/income ratio.
A smaller proportion of financial saving was
also hoarded in the form of notes and coins
and had the same effect.
It is not possible to read off agricultures
share in overall saving and investment
precisely from the figures given in Tables 3.15
and 3.16. But some speculations are possible.
Roughly a third of public investment went
into agriculture. And less than a tenth of
private investment went into agriculture. If
we apply these proportions, net investment in
agriculture as a percentage of national income
were: 0.9 (190113); 0.8 (19309); and 0.5
(19406). Now, comparing these proportions
with the share of agricultural income in
national income in these years, we get a ratio
of net investment to income in agriculture as
follows: 1.2 (190113), 2.0 (19309), and 1.4
(19406). Such low numbers, especially in the
presence of acceleration in population growth
growth and structural change 93
Estimates of Saving, 190146
18961913 19309 19406
23 3.2 3.3
1.5 1.5 0.00
and low average yield of land, spell stagnation
in average standards of living.
Why were investment rates so low in
agriculture? Two sets of explanations are
possible. The first set of explanations would
look at the adequacy or otherwise of savings,
and the second at cost of or access to capital
by potential investors. As Table 3.16 shows,
financial saving was of low magnitude,
reflecting a narrowly developed modern
financial sector. Little of the financial saving,
moreover, was made by the rural classes or
flowed back to rural India, except to a small
extent via government bonds and government
investment in irrigation. The savings data do
not capture the savings made and invested
within agriculture. If we assume all financial
savings went to meet gross investment
outside agriculture, then approximately 8
per cent of rural income was set aside for
capital accumulation within agriculture.
About a quarter of this amount was spent on
purchase of gold and silver ornaments, and
half to two-thirds was spent on replacement of
capital stock or hoarded coins. The remaining
part, spent on addition to capacity, was
consequently small. During the Depression
years, net gold accumulation was negative,
and gross investment rates were larger. In
any normal harvest year, a large quantity of
gold and silver was imported into India, to be
converted into jewelry. The quantity of non-
monetary gold absorption was so large that
94 economic history of india
the world financial circles, and especially the
city of London, were often fearful that a good
year in India might interfere with monetary
expansion elsewhere in the world.
Surely gold was a drag on rural investment.
But could agriculture bid for more financial
savings? Did farmers want to bid for more
savings? This question leads us to the structure
of the rural credit and capital market, and an
alternative explanation for the low level of
investment. Historical scholarship on rural
credit markets has been preoccupied with the
monopolistic credit market dominated by the
village moneylender (see also Chapter 4). The
professional rural moneylender is usually seen
as an exploitative agent and the credit market
as a system of extraction of potential surplus.
The moneylender, not being a peasant,
used this surplus for purposes other than
improvement in crop output. The peasants
became caught up in a debt trap because of
forces beyond their control. Increased world
market risks, shift in cropping pattern from
food to cash crops and consequent exposure to
famines; the demands of the state for revenue
in lean agricultural seasons; all contributed to
pushing the peasant into a debt trap.
In recent times, the moneylender has begun
to be seen as a lesser evil. The story of a debt
trap is not entirely consistent with evidence
from regional agrarian history. First, many
debt transactions were done between peasant
and peasant, and not between peasant and
moneylender. Second, all borrowings were
not distress borrowings. Peasants borrowed
to buy land, as they did to a noticeable extent
in Punjab in the 1920s. Third, there was a
difference in the meaning of debt between a
market-oriented, growing agricultural frontier,
such as Punjab, and a subsistence-oriented,
overpopulated zone, like Bengal.
A different account of scarcity of capital
rests on public investment.
PUBLIC FINANCE
There were two main types of government
expenditure in British India: expenditure
in India and expenditure abroad. The two
common types of government expenditure
abroad were pensions paid in sterling to retired
employees, and interest on public debt raised
in London. The government could finance
its expenditure by three means. The first was
current revenues. From current revenues 70
80 per cent were raised in taxes. The second
was borrowings from abroad, and the third
borrowings at home. We can write:
Government expenditure
= expenditure in India + expenditure abroad
= Governments receipts
= current revenue (mainly taxes) + borrowings
abroad + borrowings in India
The detailed composition of government
revenues and expenditure will be discussed
in Chapter 9. Table 3.17 below describes the
broad pattern of public finance in the first
half of the twentieth century. A few points in
this data are noteworthy. The government
borrowed heavily to finance its expenditures,
in London and in India. These borrowings
peaked at the time of the World Wars. There
were two types of securities sold by the
government. One was denominated in sterling,
and the other denominated in rupees. In the
nineteenth century, the main buyers of both
were Europeans. Some had association with
India and some did not. The holders of rupee
securities were more likely to be Europeans
residing in India. But over time, the proportion
of Indian banks and Indians increased among
the buyers of rupee securities. Also over time,
there was increasing reliance on the Indian
money market by the government. The London
borrowings as a proportion of national income
peaked in the last quarter of the nineteenth

century. These loans were raised to finance
wars and railway construction. By 190013,
military compulsions were weaker, and railway
investment was beginning to decline. After the
Great Depression, net borrowings in London
steadily declined. But the governments debt in
the form of rupee securities increased.
The three main heads of investment were,
railways, irrigation and roads and buildings. Of
these three items the first was the largest. But
its share in gross investment fell from 51 per
cent in 18981913 to 27 in 19308. Irrigation
was a small item of expenditure (1116 per
cent in this period). The share of roads and
buildings increased from 3146 per cent.
One noteworthy feature of Table 3.17 is the
declining share of investment in government
expenditure, and the declining ratio of public
investment in national income. Given the
limited capacity of the government to raise
taxes, the capacity to invest depended on its
administrative expenditure commitment and
the capacity to borrow abroad. In other words,
state capacity was linked with the balance of
payments.
BALANCE OF PAYMENTS
It is useful to begin with a summary of the
general pattern of receipts and payments.
Table 3.17 Receipts and Payments on the Government Account, 190146
Per Cent of National Income
Current revenue
Net Capital Receipts
Net issue of rupee debt
Net issue of sterling debt
Expenditure*
Investment (from Table 3.17)
Source: Based on Goldsmith, Financial Development, Chapter 1, Tables 21 and 22 (pp. 3940), Chapter 2, Tables 29 and
31 (pp. 11215).
Note: *Calculated by summing items on the receipt side.
growth and structural change 95
Good quality estimates, however, exist only for
the interwar period. In the 1920s, there were
two major types of net inflow: net export of
goods and net inflow of foreign investment.
These two together formed about 4.4 per
cent of national income. Three types of net
outflow balanced these: private remittances
(2.7 per cent of national income), government
remittance (0.4 per cent), and net purchase of
gold and silver (1.3 per cent).
Estimates available for the middle of the
nineteenth century suggest that the pattern
was not fundamentally different around the
beginning of Crown rule (1858). The five
items above were even then the principal
items in the external account, and in most
years carried the same signs as these did later.
Balance of trade was usually positive, whereas
remittances and precious metal transactions
usually negative. The relative magnitudes,
however, were different. The total size of
external transactions relative to national
income was smaller in 1858 than in 1914. And
within total payments, the shares of private
remittance and gold purchase were smaller too,
while the share of government remittance was
larger.
India received several types of capital flow,
short-term and long-term. The usual type of
short-term flows, which are not adequately
190113 19309 19406
5.39 3.50 4.26
0.22 0.49 3.48
0.30 0.19 0.96
5.91 3.80 6.78
2.21 2.08 1.32
96 economic history of india
captured in the annual accounts, went to meet
the seasonal demands of trade. The India
Office sold bills in London (called Council
Bills) redeemable in India, which went to
meet export transactions that peaked in the
harvest seasons. Interest rates in India varied
greatly by season, and these capital flows
were evidently influenced by the attraction of
high interest rates that prevailed in the busy
season. The business of Council Bills was
mainly conducted by the Exchange Banks,
which were a group of banks licensed to
conduct the foreign exchange business. All of
them had head offices outside India. In the
1920s, there were other kinds of inflow of
short-term foreign capital for investment in the
government of Indias rupee debt, but as the
Depression began, the flow reversed.
Long-term capital came in two forms, net
private foreign investment, and net increase
in public debt. Private foreign investment
remains the weakest link in the balance of
payments database. Based on what data are
available, it seems that net foreign investment
was usually positive, but a small item (well
below 1 per cent of national income). Railways
dominated private investment in the third
quarter of the nineteenth century, but this
changed towards the centurys end, with the
formation of tea, jute and mining companies.
Such investment was initially in the form of
shares sold in London by companies based
in India. In the interwar period, the pattern
changed into direct investment in subsidiaries
of foreign firms. At least some of these
multinational firms were attracted by the
substantially higher import tariffs introduced
from the 1920s. At Independence, foreign
capital accounted for about a quarter to a third
of capital stock in the private corporate sector,
according to different estimates. Plantations,
jute textiles, and engineering had more than
two-thirds of the capital stock foreign owned.
British companies owned 77 per cent of
foreign capital. Much of this capital had come
in as portfolio investment. Of the remaining
amount, the major part came from USA, all of
it as direct investment.
As mentioned before, the government
of India sold two types of securities, one
denominated in sterling, and the other
denominated in rupees. In the nineteenth
century, the former exceeded the latter in
value. By 1910, the two were of roughly
equal magnitude. In the 1930s, sterling
securities were being retired rapidly, and for
new issues the government relied entirely
on the Indian money market. The events
of the Great Depression (see Chapter 8)
weakened Londons confidence in Indias
sterling bonds. But there was also a long-term
factor behind the decline of sterling bonds.
Between 1880 and 1930, the average buyers
of government securities had changed from
old India hands in Britain to Indian banks and
the Indian public, who accepted rupee debts
more easily. Public debt went to finance the
railways, irrigation, roads and buildings in the
nineteenth century. In the twentieth century,
these productive expenditures declined in
importance. On the other hand, World War
I led to a significant accumulation of debt to
finance the war.
Net factor income flows were consistently
negative. Both private flows and government
remittances were individually negative
items. The ratio between these was roughly
3:2 in the 1860s, and probably increased
marginally towards the end of colonial rule.
The largest item in private flows (about half
in the 1920s, and increasing) was repatriated
income earned on foreign investment. Other
items included insurance and freight charges,
and dividend of railway companies, which
progressively declined as the railways became
state owned.

Government remittance abroad was a
politically sensitive item of the balance of
payments. Every year, the government paid to
Britain a sum of money in sterling, which was
called the home charges in the nineteenth
century. About half of the home charges in the
pre-war years consisted of debt service. The
second most important item was payment for
maintenance of an army and marine force. A
third major component was pension payments
for officials who had served India and retired
to Britain. India Office expenses and stores
purchased were the other items of expenditure.
These payments, Indian nationalists argued,
reduced the capacity of the domestic economy
to generate savings and investment, an
argument that became known as the drain
theory. In principle, if such payments were
financed from taxes, domestic consumption
or saving could fall. If such payments were
financed out of governments own investment
funds, public investment could fall. If such
payments were financed out of foreign
borrowings, the volume of payments would
increase by interest obligations. All three
methods were used to meet these charges. For
example, the regressive salt tax was used to
finance increased government obligations in
sterling in the 1890s. However, none of these
adverse effects might result if these charges
corresponded to factor services that in turn
increased national income, or that supplied
public goods, which the government ought to
provide anyhow. The potential adverse effects,
in other words, depended on the quality of
these charges. There is no conclusive measure
for quality.
For example, when the Indian government
paid a higher salary to a European for work
that an Indian could do for less, there was a
waste of resources; but when the government
paid a high salary to a European engineer or a
university professor who had technical skills
growth and structural change 97
not available in India, the expenditure was far
from wasteful. In the nineteenth century, a
great deal of government expenditure was in
fact made for services that India needed but
could not supply on its own. After all, the two
countries were worlds apart in their technical-
scientific and managerial capabilities. To take
another example, Indian nationalists alleged
that the charge on account of the British
Indian marine fleet, which normally guarded
trade routes, was unproductive because it was
sometimes deployed for purposes other than
the defense of Indian waters. On the other
side, it has been suggested that the British
public, which on average paid ten times more
than their Indian counterparts towards the
maintenance of the fleet, in fact subsidized
Indian defence.5
A second problem with these payments
was that they compromised the governments
capacity to follow a stabilization policy
independent of British economic interests.
This effect was in evidence whenever the
Indian currency was under pressure, for
example, during the Great Depression (see
also Chapter 10, The Monetary System). The
close link between the budget and the balance
of payments was maintained by Indias export
surplus and the governments capacity to
raise sterling loans in London, which together
financed its remittances abroad and a part of
its investment. Late in the interwar period, the
system broke down. Net export, affected by
the Depression, declined. Sterling loans were
not easy to raise. And yet, the governments
remittance commitment had not changed. The
casualty was the investmentincome ratio.6
A further point of weakness was the high
degree of instability, owing to the dependence
on agriculture, and also on foreign trade. In the
absence of a central bank and an independent
monetary authority, price stabilization was
conducted by means of a few rules of thumb.
98 economic history of india
In turn, price instability led to serious welfare
consequences, even famines, since most wages
and earnings were poorly indexed.
PRICES
Reliable price series begin from the mid-
nineteenth century. Prior to that point,
considerable data exist, but only for a
few commodities. In the first half of the
nineteenth century, prices saw several cycles
of steady fall or rise, over a span of six to seven
years each. In the absence of other data on
economic activity, historians have sometimes
relied, perhaps a little too much, on these price
cycles, which did not necessarily correspond
with cycles in production.
By 1875, an unmistakable trend did
emerge; prices rose for the next 50 years. The
price of wheat in 1925 was three times what
it had been in 1875. The expansion of the
world economy, and greater overseas demand
for primary commodities account for the
relatively greater rise in prices of exportable
foodgrains compared to other commodities.
The steady devaluation of the rupee between
1873 and 1893 due to global depreciation in
silver (the rupee was a silver coin and could
be freely minted until 1893) was another
factor. From the mid-1920s world commodity
prices began to fall, and fell precipitously in
India. Once again, the monetary policy of the
colonial government was faulted, this time for
its persistence in maintaining an overvalued
rupee.
The longer trends and cycles were broken
frequently by sharp short-term fluctuations.
Prices in colonial India fluctuated rather more
than either post-Independence Indian prices
or contemporary global prices. Between 1900
and 1935, for example, severe inflation of 2030
per cent was not uncommon, often as part of
a price cycle. On the other hand, during the
Great Depression, prices fell by a factor of four
or more.
Agricultural production, of course,
depended on rainfall, which could change
sharply and without warning. In the early
twentieth century, unpredictable weather
alone did not fully explain price movements.
The correlation between prices and rainfall
was mediated by other variables, such as
addition to the money supply, and changing
demand for non-monetary gold. India
functioned under currency regimes that
left its money supply sensitive to balance
of payments, and perhaps as a result, more
volatile than one would expect under a
central bank. Real incomes, on the other
hand, depended primarily on harvests, which
were weather sensitive. These features led to
an inherent maladjustment between money
supply and transactions demand for money,
which J.M. Keynes considered a major
weakness of the Indian monetary system.
For example, in a year that had seen a bad
harvest, domestic income and consumption
would fall. And yet, a buoyant world trade
could see monetary expansion, adding fuel to
an ongoing price rise. The effects of monetary
expansion on interest rates were relatively
weak because of undeveloped asset markets.
A bad harvest normally led to a contraction in
the demand for non-monetary gold import,
further adding to currency growth. If inflation
eventually depressed exports, a counter-cyclical
mechanism could work. In a slightly different
way, the Great Depression was an example
of the same kind of maladjustment. A trade-
induced monetary contraction coincided with
normal, even unusually good, agricultural
seasons, leading to a large fall in prices.
 growth and structural change 99

Table 3.18 Balance of Payments, 192139

19219 19309
Per Cent of National Income
Net export of goods 3.2 1.4
Net export of treasure 2.4 1.1
Net Private remittances into India 2.9 2.7
Net government remittances into India 1.0 1.2
Net capital movements* 1.7 1.4
Balance of Payments 0.0 0.0
Sources: A.K. Banerji, Indias Balance of Payments, Bombay: Asia, 1962, Tables V, XXVI, and XXXVII; and national in-
come figures from Sivasubramonian, National Income.
Note: *Defined as net foreign investment inflow plus purchase of government bonds by foreigners. In Table 3.18, this
item is estimated as a residual balancing item. This item requires some explanation on database. In external transactions,
the most reliable data are available for commodity and treasure. Discharge of public debt in sterling is also reasonably
correct. Banerji has estimated, within some margin of error, the factor payments. There is no reliable estimate available
for net investment by the private sector, and therefore, no reliable estimate available for net capital movements. In this
table, net capital movements are calculated by simply adding the other four items (all the five items together should add
to zero). But this figure is subject to the margin of error that applies to Banerjis series on factor payments.

Table 3.19 Structure of Balance of Payments, Early and Late Colonialism (Rs million, annual average)

186676 19309
Net export of goods 221 318
Net export of treasure 87 314
Net private remittances into India* 66 609
Net government remittances into India 130 269
Net capital movements** 61 246***

Balance of Payments 0 0
Sources: A.K. Banerji, Aspects of Indo-British Economic Relations, 18581898, Bombay: Oxford University Press, 1982, p.
157; and Banerji, Indias Balance of Payments, Tables V, XXVI, and XXXVII.
Notes: *Both factor payments and private foreign investment for 186676; consists of only factor payments for 19309.
**Only net change in government debt for 186676, both private foreign investment and government debt for 19309.
***Derived as a residual.

Table 3.20 Composition of Factor Payments, 18601939 (percentage of total net payment)

18601 19212 19389

Main payment items:
Freight, insurance, etc. on import n.a. 26 12
Net railway dividend 9 0 0
Remittance by the government 43* 31** 28**
Interest and dividend on private investment 18 38 37
Total net payment for services and non-commercial transaction 100 100 100
Sources: Banerji, Aspects, Table 34, pp. 1689; and Banerji, cited under Tables 3.18 and 3.19.
Notes: *Home charges as defined by Banerji. **Consists of interest on public debt and pension payments only.
100 economic history of india

Box 3.3 A National Accounting System for Colonial India

The national accounting system is a convenient and useful description of the structure of an economy in
terms of transactions between its parts. The essential accounting framework can be modified marginally
to produce a series of definitions that depict the colonial Indian economy well enough. The picture is
useful in understanding debates and controversies on growth. The five accounts of the nation can be set
out as follows:
1. Production account: supply of goods from home or abroad equals goods purchased
(Y + T) + M = C + (I + Nin) + G1 + X
or
Y= C + (I + Nin) + (G1 T) + (X M)
Where Y = GDP at factor cost; T = direct and indirect taxes paid to the government; C =
consumption goods purchased; I = investment goods purchased; G1 = government purchases; X =
export; M = import; Nin = investment goods demanded by foreign investors.
2. Income account: expenditure equals income.
C + S + Nout + B1 + (Mgold Xgold) = Y + (Fin Fout)
Where Fin = income received by citizens from abroad; Fout = payments to foreigners for various
services; S = deposits or securities with the private sector; B1 = government securities sold at home;
(Mgold Xgold) = net import of gold and silver; Nout = foreign investment abroad.
3. Accumulation account: investment by domestic investors equals deposits or securities left with the
private sector.
I=S
4. Public finance: government expenditure equals government receipts.
G1 + G2 = T + B1 + B2
Where G2 = expenditure abroad; B2 = government securities sold abroad.
5. Balance of payments: receipts in foreign currency equals payments in foreign currency.
[X M] + [(Nin Nout) + B2] + [Xgold Mgold] + [(Fin Fout) G2] = 0
It can be checked that this account is balanced, that is, if the left-hand and right-hand sides are added
up, all items cancel out.
Conventional arguments about growth and stagnation can be restated using the national accounts
system. Consider the three main versions of the argument that colonialism caused underdevelopment.
The drain theory states that, given receipts, a larger G2 lowered G1, or government expenditure abroad
crowded out expenditure in India. Second, for a given net receipt of sterling from abroad, a larger G2 meant
lower M or lower capacity to import. Third, in the 1920s, overvalued exchange might have depressed
export (X) and encouraged import (M), which would mean a smaller Y than that under a flexible exchange
rate regime. The alternative story suggesting why colonial pattern of growth produced low rates of growth,
but not necessarily focusing on the government account, has several strands. One would focus on gold
import. Other things being the same, if Mgold becomes larger, savings usable for productive investment (S)
can fall, and import (M), a large component of which were machinery, can fall too. Any account of slow
overall GDP growth that places accent upon low expected rate of return on private investment in land or
other business cannot be illustrated with the national accounts systems.

Episodes
In the early twentieth century, a conjunction
of monetary and real pressures led to
price instability. Each of the three major
inflations19038, 191314, and 191920 Prices and Production
was preceded by a major harvest failure. Real
agricultural output declined by 7 per cent in
19024, by 15 per cent in 19067, by 14 per
cent in 191013, and by nearly 30 per cent
in 191718. Prices began to rise due to the
shortage of agricultural goods. In each case,
buoyant export demand led to expansion in
money supply. These two factors combined to
generate a rapid rise in prices.
The intensity and duration of the inflations
varied. Prices increased by 33 per cent in
19057; the average annual rates were about
610 per cent in the second episode; whereas
in 1919 prices increased more than 50 per cent
over the previous year. The variation can be
attributed to the extent of currency expansion.
In the first of these three episodes, gold imports
fell much more than agricultural exports, so
that money supply expanded. In the second
case, the effect of inflation on commodity
trade was more pronounced than the effect on
gold, dampening monetary growth. In 1919
private gold transactions were suspended, as the
government needed gold for currency reserve.
During both world wars, expanding world
demand for war-related goods coincided
with supply constraints, resulting in inflation.
In World War II, however, monetary policy
complicated the picture, as we have seen. In the
interwar period generally, harvest fluctuations
were milder. As a result, price and currency
fluctuations in the interwar period were entirely
due to trade shocks. While the exchange rate
partially bore the impact of trade shocks until
the mid-1920s, thereafter the exchange was
effectively fixed again, so that a gradual decline
in export demand induced steady deflation.
growth and structural change 101
From 1926, currency growth, and all prices
began a seven-year downward course, the
climax coming in 1931, when a sharp fall in
exports caused prices to crash.
Price trends have often been cited, and
sometimes misused, as a link between
politics and economic change under British
rule. The earliest episode illustrating this
is a price depression in the second quarter
of the nineteenth century, which has been
read widely as a sign of rural economic
crisis induced by revenue policy, but which
overlooks the fact that the prices of major
consumer goods like cotton textiles were
falling worldwide in this period. In the time
span covered in this book, the two particularly
controversial episodes were the mild inflation
of 187090 and the Depression. Both episodes
involved a monetary policy driven by imperial
interests rather than Indian ones. Of particular
significance for the political economy of
interwar India was the Great Depression.
THE GREAT DEPRESSION
In common with many other open
economies, India experienced the onset of
the Great Depression in two main ways.
First, demand for agricultural exports fell.
And second, the prevailing currency system
compelled a deflation. Like many of its
tropical counterparts, India was a colony of
Britain, which ruled out any move to adjust
the exchange rate. With devaluation made
politically impossible, fall in export demand
led to a sustained and deep deflation. Real
interest rates rose. Indebted households
liquidated a variety of assets to repay loans
when they could. Indebted businesses failed.
Banks were left with unrecoverable assets. As
102 economic history of india
elsewhere, wage depression, the end of the old
currency regime, and the recovery of banks
returned the economy to health. While this
general pattern occurred in India too, several
aspects of the Depression story in India were
unique.
Real domestic product changed little during
the peak of the Depression, 192933, unlike
most economies in the Americas and Europe.
Several features insulted India somewhat
from the effects of a crash in financial markets
and commodity trade. The trade sector was
relatively small in 1929 (exports were 79
per cent of Net Domestic Product). Unlike
in Latin America, where the Depression also
worked upon American investment, the share
of net private foreign investment in national
income was less than 1 per cent. While
primary products accounted for about half the
export basket, agriculture mainly served the
large domestic market. Unlike most tropical
exporters, India possessed an extensive
manufacturing industry in 1929. Some of
these industries were beginning to receive
protective tariffs. The effect of the Depression
on the financial system was subdued, because
most banks lent only short term in commodity
trade, whereas long-term investment came
from own savings or the informal sector.
These stylized facts have generated a
debate on the nature of the shock upon India.
One position argues, with India as one of the
examples, that the effect was less damaging
on the Third World than it was upon the
developed world. The critics (especially,
D. Rothermund) argue that the burden of
adjustment fell more upon the poor than
the wealthy. Further, the uneven burden of
Depression adjustment had political causes
and far-reaching political consequences. The
evidence in support of the second view comes
mainly in the shape of prices. Prices fell in
the Depression time span to a greater extent
than in Europe and North America. The
most effective reversal to the deflation owed
to liquidation of hoarded savings of peasant
households during 19327. Although banks
were relatively insulated from the bad debt
problem, the credit market situation was quite
different in the villages. The economic stress
that the peasants felt owed less to the initial fall
in money incomes in cash crops, and more to
collapse of the rural credit market on account
of a massive rise in the real debt burden.
In common with many other regions of
the world, the Depression became a political
watershed. The ensuing rural unrest over rent
and debt payment turned, for the first time
in its history, the nationalist and anti-colonial
struggle into a truly mass movement. The
cynical economic management destroyed
what little trust there was left between Indian
business and the British government, and
forced European and Indian businesses to
take sides in the nationalist movement as
never before. So, underlying the tranquil
picture presented by output statistics, there
did occur an upheaval, caused by three
circumstances; conflict between debtors and
creditors, contradictory interests of exporters
and domestic market suppliers, and above
all, contradiction between British and Indian
stabilization and their respective long-term
economic interests.
CONCLUSION
In the orthodox leftist-nationalist
interpretation of colonial India, colonialism
impaired the capacity of the economy to
grow rapidly. There are several elements to
the argument. The nationalists considered
remittances on the government account to be
the most important link between colonialism
and underdevelopment. Remittances had the
potential to depress government expenditure

within India, lower the capacity to import,
and induce the government to borrow
abroad, which in turn added to the burden of
remittances (these arguments are expressed in
national accounting terms in Box 3.3). Other
elements were added later, such as adverse
trade policy or adverse class structure, which
other chapters will discuss.
It should be evident from the chapter
that any attempt to characterize the colonial
period as homogeneous, and definable by the
political dimension alone, must be futile. It
is hard to characterize all of colonial rule in
India as growth, or stagnation. The pre-war
period saw more of growth, the interwar more
of stagnation. Industry saw more of growth,
agriculture more of stagnation. Some regions
saw more growth, others saw more stagnation.
It is clear that a general model of colonialism
and underdevelopment cannot explain these
variations.
A better way to explain these dynamics
would require incorporating structural features
into the story. The key structural constraints
arose from the stagnant low productivity
of land, even though the very availability of
cultivable wastes was a positive structural
condition. It is clear that in the pre-war
period, the colonial, global, and the structural
elements formed a kind of feedback that
produced positive and significant economic
growth, whereas in the interwar period that
mechanism broke down. The world market
for third world goods weakened, colonial links
became less relevant for the Indian economy,
growth and structural change 103
and agriculture stopped growing due to
endogenous causes.
Central to the whole story of interaction is
the condition of agriculture, which is taken up
in Chapter 4.
NOTES
1. Paul Krugman, Scale Economies, Product
Differentiation, and the Pattern of Trade, American
Economic Review, 70(5), 1980, pp. 9509; Gene M.
Grossman and Elhanan Helpman, Trade, Innovation,
and Growth, American Economic Review, 80(2), 1990, pp.
8691.
2. The ratio declined from this range in post-
Independence India, to become about 34 per cent in
1980. Thereafter, trade liberalization saw the ratio rise
again.
3. See Kaoru Sugihara, Patterns of Asias Integration
into the World Economy, 18801913, in C. Knick Harley
(ed.), The Integration of the World Economy, 18501914,
Volume 2, Cheltenham: Edward Elgar, 1996.
4. In the same period, the ratio increased from about
818 per cent of income in Japan. In some industrialized
countries such as the United States it fell to levels that
were still larger than Indias.
5. Patrick K. OBrien, The Costs and Benefits of
British Imperialism 18461914, Past and Present, 120,
1988, pp. 163200.
6. By contrast with the colonial pattern, after
Independence in 1947, restrictions on gold import
brought the share of gold transactions close to zero;
the government account showed a net receipt due to
foreign aid, but the shares of trade, foreign investment,
and private remittance declined. Balance of trade turned
negative, owing to large imports of capital goods, oil, and
sometimes food. Later in the 1970s, private remittance
from expatriate workers in the Gulf increased. The shares
of trade and investment increased again from the 1980s.
4
Agriculture
T hroughout the colonial period, and until
well after 1947, agriculture provided
livelihood to more than two-thirds of the
economically active population in the South
Asia region. If the artisans lost livelihoods
during the nineteenth century globalization
process, the peasants gained. And yet, growth
rates in agriculture remained unimpressive
in the best of times, the maximum being a
little above 1 per cent per year in the 50 years
before World War I, and disastrously low
in the interwar period (Table 4.1). Further,
regional inequality increased, as some regions
took part in export-driven growth more
successfully than did the others. And the
pattern of inequality that took shape during
the colonial period turned out to be long-
lasting. The regional pattern of agricultural
growth and stagnation after Independence
was similar to the regional pattern of growth
and stagnation in the colonial period. Pockets
of rural poverty in later times had already
emerged as pockets of rural poverty in the past.
Areas that experienced the green revolution in
the 1970s and 1980s had started on the road to
prosperity during British rule. The association
between regional inequality in the past and
that in the present times is becoming weaker.
But it has not disappeared. The past should
explain the present of Indian agriculture in an
obvious and direct way.
Why was growth so uneven? Why was
there continuity in the regional pattern of
agrarian change? Why was growth low overall?
This chapter will describe agrarian change
over the period, 18581947, and return to
these questions at the end. The chapter is
divided into eight parts: trends, resources and
techniques, commodity market expansion,
regional experience, factor markets, effects of
commercialization, explaining slow growth,
and conclusions.
TRENDS IN PRODUCTION AND
INCOME
The statistics on agricultural output have
limitations. Scholars disagree on how critical
these problems are, and how they can be
resolved. The disagreements have generated
 agriculture 105

Table 4.1 Growth Rates of Net Domestic Product (NDP), Total and in Agriculture,
18689 to 19467 (trend growth rates, % annual)

Agriculture NDP Population Per capita NDP

186898 1.01 0.99 0.401 0.59

188298 1.08 1.29 0.512 0.78
190046 0.31 0.86 0.873 0.01

Sources: Alan Heston, National Income, in CEHI 2, Table 4.3A for 186898; S. Sivasubramonian, The National Income
of India in the Twentieth Century, New Delhi: Oxford University Press, 2000.
Notes: 1898 stands for average of three years, 18967, 18978, and 18989. 1900 and 1946 are similarly three years
averages.

alternative series of national income and led
to different views on regional agricultural
performance.1 For the period before 1890,
the problem of inadequate data is so serious
that all India estimates of agricultural output
and income seem impossible. Some broad
conclusions can be drawn about trends in
major crops and major regions; these are
summarized below.
Agricultural Production in the
Nineteenth Century
Two patterns stand out in the fragmentary
data. First, in major regions the second half
of the nineteenth century saw a significant
expansion in net sown area or land under
cultivation (see the regional evidence
discussed below). This was a universal
phenomenon confirmed by land-use statistics.
But it was more pronounced in crops that
were traded widely. And second, in specific
commercial crops, such as cotton and wheat,
there is evidence of a moderate rise in yield
per acre during the nineteenth century.
Based on these findings, it is certain that
the latter half of the nineteenth century saw
expansion in output in almost all the major
regions. National income data is built on
that prediction. The growth mainly owed to
increasing area under cultivation. Cultivable
wastes were available in the late nineteenth
century. Also, large areas of otherwise
uncultivable wastes were made cultivable by
canal irrigation.
Agricultural Production, 18901947
George Blyns reconstruction of agricultural
statistics is the standard reference on this
period.2 This work suggests seven main
findings.
1. Between 18911946, average growth rate of
crop output was 0.37 per cent (Table 4.2).
2. The experience of foodgrains and non-
foodgrains differed. Foodgrain output was
stagnant, whereas non-foodgrain output
was growing (Table 4.2).
3. Output growth rate was small because (a)
acreage growth was small, and (b) yield
per acre grew slowly, even declined in food
crops (Table 4.2).
4. Until World War I, yield per acre of both
food and non-food crops was growing.
But in the interwar period, food crops
experienced a decline (Table 4.3).
5. Among food crops, the source of stagnation
was mainly rice. Wheat yield was growing.
Among coarse grains, the picture varied
(Table 4.3).
6. Regional experiences varied. Bengal
106 economic history of india

suffered a greater decline than any other
region, or the rest of British India together.
Greater Bengal had below-average growth
rates in both food and non-food crops
output, in yield per acre, and in yield per
capita (Table 4.4). In rice, yield per acre in
Bengal fell sharply, whereas that in Madras
increased.
7. Until World War I, food output grew more
rapidly than population, which suggests
an increasing availability of food per head.
In the interwar period, population growth
rate accelerated and food output growth
rate decelerated, leading to a fall in food
availability per head (Table 4.5, see also
Table 3.6). The situation was acute in
Bengal, where food output fell at an annual
rate of 0.7 per cent during 192146 and
population grew at an annual rate of 1 per
cent in the same period.
These seven findings boil down to one basic
conclusion, that commercial crops experienced
more growth than subsistence crops. That is,
commercialization, growth in production, and
regional performances, were correlated. What
commercialization meant to the standard of
living of the peasantry depends on how we
interpret the link between commercialization
and agrarian growth. In one view, markets
provided the incentive for the peasants to grow
more. In another view, markets empowered
capitalists who forced the peasants to raise
their output. In the former view, the peasants
should be better off; in the latter they were
worse off. Neither view accounts adequately

Table 4.2 Trend Growth Rates of Crop Output, Acreage and Yield, 18911946
(% annual for British India)

Output Acreage Yield per Periods of Growth and Stagnation in Yield per Acre
Acre
18911916 191621 192146

All crops 0.37 0.40 0.01 0.47 0.36 0.02

Foodgrains 0.11 0.31 0.18 0.29 0.63 0.44
Non-foodgrains 1.31 0.42 0.67 0.81 0.34 1.16

Source: George Blyn, Agricultural Trends in India, Philadelphia: University of Pennsylvania, 1967, Appendix Table 5A.
Note: The trend rates are the average of ten rates, each relating to a five-year period. Blyn divided the entire period into
ten such divisions.

Table 4.3 Growth Rates of Output of Major Crops in British India, 18911946
(trend growth rates, % annual)

Foodgrain Growth Rates Non-foodgrain Growth Rates

Rice 0.09 Cotton 1.30

Wheat 0.84 Sugarcane 1.30
Jowar 0.05 Tobacco 0.03
Bajra 0.72 Groundnut 6.26
Maize 0.02 Jute 0.27
Ragi 0.37 Tea 2.74
Indigo 6.19

Source: Blyn, Agricultural Trends in India, Appendix Table 5A, and Table 5.8.
 agriculture 107

Table 4.4 Per Capita Output and Growth Rates of Output in Major Provinces, 18911946
(trend growth rates, % annual)

Growth Rates, Output Per Capita Foodgrain Output (000 tons)

of All Crops
1891 1941

Greater Bengal 0.45 212 147

Rest of British India 0.82 160 168
United Provinces 0.42 123 130
Central Provinces 0.48 207 149
BombaySind 0.66 195 152
Madras 0.98 146 163
Greater Punjab 1.57 140 201

Source: Blyn, Agricultural Trends, Appendix Table 5A.

Notes: Rest of British India is a simple average of the rates of the other six major provinces.

Table 4.5 Relationship between Agricultural Output and Population Growth Rates, 18911946
(trend growth rates, % annual)

18911916 192146

Population 0.44 1.12

All crops 0.84 0.34

Foodgrain 0.61 0.13
Non-foodgrain 1.66 1.08

Source: Blyn, Agricultural Trends, Appendix Table 5A.

for significant regional variation in peasant
welfare and market participation.
The simplest way to address regions
is by means of geography and resource
endowments, which varied widely.
RESOURCES AND TECHNIQUES
Soil
Geologists have identified four broad types
of soil relevant to a study of agricultural
conditions in colonial India. First, the red
soil that derived from the rock formations
that characterized the entire peninsular
India, and, in more isolated ways, Rajasthan,
north-western India, and central India. This
type varied in productive power, but as a rule
was deficient in nitrogen. Further, hill slopes
where a thin layer of the soil occurred did not
offer fertile land, nor permit easy irrigation.
However, in the valleys and plains, a sufficient
depth could be found. The second principal
type was the black cotton soil or regur that
occurred in the Deccan trap, extending over
much of the Bombay Presidency, Berar and
Hyderabad, and also in the MadrasDeccan
region, in Bellary, Anantapur, Kurnool,
Cuddapah, and Coimbatore districts. Once
again, in the uplands and slopes, the depth
was often inadequate for cultivation except
with a heavy monsoon. But in the valleys
and plains, a thick layer of dark-coloured soil
could exist. In the deltas of Surat and Broach,
108 economic history of india
though lying outside the Deccan trap, rich
alluvial deposits of the black soil occurred.
The black cotton soil was rich in magnesium,
calcium and iron, and could retain moisture
well. The third broad type of soil was the deep
(1600 feet in parts of north India) layer of
alluvium that characterized the Indo-Gangetic
plains, Sind, northern Rajputana, and Punjab.
The soil quality varied from fine sand, to
rich loamy soils, to stiff clays. With sandy
soil, agriculture was not easy because of poor
retention of moisture. With clay, the risk of
soil damage due to deposits of salt, in turn a
result of waterlogging, was relatively high. The
last major soil type was the product of laterite
rocks, a porous and clay-like soil that occurred
near the basaltic hills of central India, Western
and Eastern Ghats. Once again, this soil
occurred in a thin layer on the slopes, where it
was not conducive to agriculture. The loamy
deposits in the valleys offered better prospects
of cultivation.
Conditions of agriculture, thus, were
variable. In the Indo-Gangetic plains, both
soil and water generally offered favourable
conditions. But in peninsular India, both soil
and water were deficient in quantity or quality,
except in the presence of alluvial deposits or
the black cotton soil.
There was a growing belief in the
interwar period among agronomists and
economists that soil quality was on average
being degraded. Two particular problems
were waterlogging and soil erosion, both
having increased in the colonial period due
to deforestation and canal irrigation. In a
series of works, the economist, Radhakamal
Mukherjee, argued that Indian agriculture was
in a crisis because of decline in soil fertility.3
The Royal Commission on Agriculture in
India (1928) considered the declining fertility
question, and found no definite evidence of
any actual declining return on land. However,
there was no question that land yields had
remained stagnant in most parts of India
through the expansion, and that Indian yields
were significantly smaller than yields of
similar crops in East Asia, Europe, and North
America.
Why were the cropping values of
Indian soils maintained at a low but stable
level of fertility, the Royal Commission
asked? Relative to other densely populated
agricultural regions, chiefly East Asia,
peasants in India used too little organic
manure to restore or increase the nitrogen
content of the soil, normally depleted due
to repeated cultivation. On the other hand,
the natural processes that enabled cropped
lands to recuperate or regain nitrogen, the
Commission speculated, might have been
somewhat stronger in India than in temperate
climates. Whereas nature ensured an
equilibrium, the low intensity of manure usage
made it a low-level equilibrium.
The manurial problem was a serious one,
in the view of an influential body of experts in
interwar India. These experts were scientists
at the newly established agricultural research
stations and economists in universities.
Mukherjee, for example, believed that in
learning how to raise yield, East Asian
practices in fertilizer use deserved to be
studied. Mukherjees prescription for the dry
areas concentrated on the plough. He believed
the dry area soil needed deeper ploughing,
which the present type of equipment used was
unable to achieve. For regions that received
sufficient rainfall, the prescription focused on
the intensity of use of manure or commercial
fertilizers. Raising manure intensity without
stable supply of water could damage the soil.
But even when there was a stable supply of
water, such as the Indo-Gangetic plains, Indian
lands received far too little manure. During
the monsoons in Asia, failure or success of

adaptation rested on indigenous fertilizers, in
this view. Nitrogen supplements in the form of
oilseeds, grains, animal hides and bones were
exported; cow dung was used mainly as fuel;
while fish manure, green manure and night soil
usage was rare, even unheard of. According
to this view, it was in the sphere of biological
inputs that the Indian peasant had most to
learn from the East Asian peasant.
Water
Although receiving a monsoon every year,
large parts of India that included the Deccan,
South India excluding the coasts, central India,
Gujarat and the western part of the Indo-
Gangetic plains received too little rainfall to
sustain a summer and a winter crop. If poor
soils joined with low rains, even growing
coarse grains became a gamble. Because
irrigation was available on a limited scale,
fertilizer use was restricted too. Hence yields
were, on average, very low.
The two most common modes of irrigation
were canals and wells. Canals could not
be constructed with private money partly
because of the large economies of scale, and
partly because canal maintenance required
coordination on a scale that individuals and
communities were unlikely to have been
capable of. The state, therefore, was the
principal agency in the case of canals. Table 4.6
shows that acreage irrigated as percentage of
cropped area increased from 1222 between
1885 and 1938. The expansion occurred
mainly in government canals and in private
wells. Canal construction, in fact, started from
the early nineteenth century. The percentage
of irrigated area was almost certainly much
less than 12 about 1820. In all four regions
government and private investment had
begun before 1885. In Sind, some of the new
canals were old works restored; elsewhere the
agriculture 109
majority of the works were new ones. Table 4.7
compares the first three provinces with the rest
of British India.
It is notable that canals and wells tended
to occur together. Canals and wells were
both concentrated in four regions, Punjab,
deltaic Madras, western UP, and Sind. With
the exception of deltaic Madras, all the other
areas were located on the Ganges or Indus
floodplains. There are two ways to understand
the correlation. First, the floodplains contained
favourable conditions for the construction of
both canals and wells. Canals were favoured
because the northern floodplains had rivers
fed by snowmelt as opposed to monsoon rains.
And wells were favoured because of the alluvial
soil and easy access to underground water in
the riparian zones. Second, canals and wells
were complementary investments. Usually,
government canals encouraged a change in
cropping pattern and raised the value of land.
That in turn stimulated private investment
in the form of wells. The farmers wanted
both. Canal water was cheap but supplies
were seasonal. Well water was expensive but
a controllable resource, and, with some luck,
available through the year.
Canals could not be constructed
everywhere due to the want of perennial and
plentiful natural sources of water. The crucial
differentiator between poverty and prosperity
in rural India, therefore, was the prospect of
constructing a private well. The rich, and the
efficient farmer, demanded a private masonry
well that enabled him/her to apply controlled
doses of water on high-valued grains or garden
crops.
The best-endowed zone in respect of wells
was western UP. The average depth of water
in the centre of the GangesJumna Doab was
between 15 and 60 feet in the 1860s. In the
countries of Rohilcund and the Teraee, the
water is so near the top that it can be easily
110 economic history of india
lifted with the lever and bucket.4 In 1869, the
cost of constructing a makeshift well ranged
from Rs 2.5 to Rs 4060, depending on the
depth and the material used to line the well.
The range was affordable for a mid-sized farm.
It was not just the cost of construction that had
led to so many wells being created in the Doab.
The incentive system and property rights
were also compatible with the economics of
well construction. The subsoil was usually
firm enough to allow the cultivator to dig
cheap makeshift wells rather than masonry
wells. However, masonry wells tended to
be constructed by individuals with secure
forms of ownership right or tenancy. On the
assumption that this was so, masonry wells
served in the courtroom as proof of ownership
rights in land, when other documents were
absent. Landlords, therefore, were known to
forbid tenants to build masonry wells.5 Equally,
the incentive for the landlord to construct
permanent wells was strong in the Doab, for
the costs were relatively low, and a masonry
well was valued as a profitable investment or a
security against drought.
But these conditions that favoured well
construction were entirely unusual. Not only
were they unusual in relation to the rest of
India, even in the context of northern India,
favourable ecological circumstances allowing a
cheap well occurred very rarely indeed. Within
less than a hundred miles from Rohilkhand,
in districts that belonged in Bundelkhand,
physical conditions worsened sharply. Wells
needed to go deep into the subsoil, needed
firm lining, and often met with rocks. A
reliable irrigation well in Banda district cost
more than Rs 1000, or as much as 40 times the
cost in the most favoured zones in Rohilkhand.
While wells were practically unknown there
for this reason, surface water was rare too,
for underground springs were few. As one
travelled deeper into the central Indian
uplands and further into the Deccan plateau,
conditions worsened.
The complementary relation between
canals and wells was misunderstood in the
initial stages of canal construction. The officers
in charge of constructing the Ganges canal,
for example, looked upon the wells as their
rivals because wells brought little gains or
the taxation was difficult to collect. Hence
they were known to forbid the use of wells, or
sometimes draw channels deliberately along
the path of the wells. The result was not only
a large number of disused wells, but also a
rise in the percolation from the canals, and
excessive moisture. This bias, however, was
reduced later, and the positive contribution of
the combination of wells and canals generally
acknowledged.
Equipment, Seeds, Livestock
The basic set of agricultural implements
changed little during British rule. There was a
tendency towards the use of more iron in place
of wood, leading to better quality irrigation
equipment and better ploughs in some areas.
In the early twentieth century, agricultural
scientists and economists sometimes
advocated a heavy plough and deep ploughing
for dry areas, which policy gave rise to a
number of iron ploughs. Although partially
successful in Punjab, elsewhere their diffusion
remained limited. In the case of wheat and
cotton, improved varieties of seeds played a
role, and were the result of the establishment
of a chain of agricultural research stations by
the government of India. Scientists staffed
these rather than, as had been the practice with
experimental farms before, bureaucrats. These
stations, especially the one at Pusa, identified
superior wheat strains by selecting among
hundreds of indigenous varieties. These new
seeds became popular.6
 agriculture 111

The diffusion of new equipment or seeds
posed a persistent economic problem, missing
markets. Agricultural research stations and
departments vigorously advocated the iron
plough. But in 1928, not more than a few
thousand out of several million ploughs
was fitted with the iron shear. Agency was a
constraint. The governments own propaganda
machine was inadequate or ineffective given
the enormity of the task. And neither an
equipment market nor a seed market on a large
scale existed. The only agency that worked
was the advocacy of rich peasants, or the
conversion of some of the rich peasants into
seed merchants. This condition occurred on a
limited scale in the Punjab canal colonies.
The main power used in driving the plough
was the bullock. India compared poorly with
many contemporary agrarian societies with
respect to the efficiency with which animal
power was used. In the 1920s, India used 67
heads of cattle per 100 acres of net sown area,
whereas Holland used 38 and Egypt, where
conditions were similar to that in many parts
of India, used 25. Holland used, in addition,
horses, but that would not have bridged the
gap. Contemporary experts believed that the
apparent inefficiency arose from two factors:
the underuse of buffaloes in India, which were
sturdier than bullocks and the source of animal
power in Egypt, and the generally poor quality
of the bullock in India. The quality problem
arose partly because of prejudices against
cow slaughter, which created a persistent
oversupply of cattle heads against a limited
and often insufficient supply of fodder. At an

Table 4.6 Area Irrigated, 18851938 (million acres, excluding Burma)

18856 19389

Canals
Government 6.90 24.41
Private 0.94 3.53
Tanks 4.38 5.87
Wells 8.74 13.21
Total irrigated 23.09 53.73
Total cultivated 185.09 243.58
Irrigated/cultivated area (%) 12.4 22.1

Source: Statistical Abstracts for British India, Calcutta, various years.

Table 4.7 Irrigated Area as a Proportion of Cultivated Area in Major Provinces, 18851938
(percentages, British India excludes Burma)

18856 19389 % Increase in Irrigated Area due to

Government canals Wells

Punjab 29.3 57.4 95.5 9.3

Madras 24.1 23.5 49.6 18.6
UP 19.3 26.6 57.0 37.2
Rest of British India 6.0 12.5 31.3 10.7

Source: Statistical Abstract of British India, various years.

Notes: The last two columns may add to greater than 100 if acreage under other systems shrinks.
112 economic history of india
earlier age, a Malthusian process of famine
mortality restored the cattlefodder ratio. But
in the twentieth century the balance had been
upset. There were other structural changes.
Progressive peasantization of pastoralist
communities had led to the disappearance
of a whole field of traditional knowledge
concerning cattle health and maintenance
of stock. It was not uncommon earlier for
livestock grazing and maintenance of herds to
be hired out to professionals. Through much
of the late nineteenth century, the peasants
took over these tasks, or those who used to
perform these turned into peasants, and in the
process, knowledge weakened.
Many of these problems, however,
emerged as problems in the context of
commercialization, or were overcome thanks
to market incentives.
MARKETS
Commercialization of Agriculture
Commercialization refers to a process
whereby peasants start producing primarily
for sale in distant markets, rather than to meet
their own need for food or to sell in local
markets. The terms distant markets or long-
distance trade in the rest of this chapter refer
to export as well as Indian markets accessible
mainly by the railway system. In economic
history, the process is significant because it
implies a potentially more efficient resource
utilization, as peasants begin to bring idle
land or manpower into use, and in response
to price incentives, improve organization and
technology.
Markets and trade in agricultural goods
existed in quite organized forms and on a
large scale in the pre-colonial period. But the
market expansion in the nineteenth century
marked a qualitative and a quantitative break.
There were three main changes. First, before
colonial rule, product markets were limited
and subject to imperfections in the presence
of a multiplicity of weights and measures,
backward and risky transportation systems,
and extensive use of barter. Colonialism and
the railways weakened these constraints. By
doing so, they enabled closer integration of
global, regional, and local markets. Second,
from the time of the Industrial Revolution,
a new international specialization began to
emerge as a result of trade. India specialized,
relatively, in agricultural exports, and took a
share of the enormous increase in the scale of
world trade in agricultural commodities. Third,
the developments in the commodity market
induced changes in rural institutions, factor
markets, and agrarian relations.
There are direct and indirect measures of
commercialization. For example, export in
value increased 500 per cent between 1870 and
1914. Non-manufactured goods accounted
for 7080 per cent of the exports. The trend
in agricultural prices moved consistently
upward in a way that was thought to be without
precedent by contemporary writers and
administrators.7 Price levels at 1928 were about
three times what they were in 1875. The area
cropped increased in most regions in the period
18701920, usually led by marketable crops
such as wheat, cotton, oilseeds, sugarcane, and
tobacco. Rents and prices of land increased.
Scale of credit transactions increased too. So
did the scale of land transfers. Circulation of
agricultural labourers in and out of agriculture
increased. And last, indices of transportation
and rural trade, such as the number of carts at
work, show a significant rise where such data
are available.
Commercialization was facilitated by
both demand and supply factors. The world
demand for food and raw materials was
immensely stimulated by industrialization in

Europe. Steam ships from the second quarter
of the nineteenth century aided the process,
as it enabled European buyers to reach South
Asian supplies more cheaply and quickly than
before. The opening of the Suez Canal (1869)
reduced shipping costs between Europe and
India. Export was not the only new market.
In a region notoriously susceptible to sudden
failure of crops, the railways brought pockets
of excess supply and excess demand in closer
touch. Industrialization created a demand for
food and raw materials in the cities. In fact, the
very process of production of non-foodgrain
or cash crops made the peasants who
specialized in such production dependent on
the foodgrain trade.
On the supply side, land taxes, being
fixed in money, were progressively a lighter
burden for the peasantry. This, in principle,
encouraged saving and investment as product
prices rose, and almost certainly increased the
role of the profit motive in peasant production
decisions. In ryotwari areas, tax rates were
revised downward in the 1840s. More
generally, with a doubling of prices between
1870 and 1914, real revenue burden fell by
almost 100 per cent. The railways brought
down the cost the farmers and merchants
had to bear while accessing the ports. Road
transportation was slow, risky and costly,
especially over long distances and difficult
terrain. River transportation was relatively
cheap, but it was available only over small areas
and for certain seasons. Large-scale irrigation
systems such as canals made wastelands
cultivable and increased cropping intensity
(that is, reduced fallow) in areas where rainfall
was limited. A further supply-side factor that
aided the production of commercial crops was
induced changes in agricultural practices and
technology, chiefly canals, wells, and seeds.
The peak period of commercial expansion
was 18601925. After 1925, and in some
agriculture 113
regions from before that date, conditions
began to turn adverse. By the early 1920s,
world agricultural markets had begun to face
persistent oversupply and price depression.
In India, major cash crops faced stagnant or
falling prices, though cotton was temporarily
free of crisis. The agricultural depression was
one factor among many that led to the Great
Depression in 192932. The Depression upset
product markets and rural credit markets.
Additionally, in the 1920s, good quality arable
land was beginning to become scarce.
Crops: Indigo and Opium in an Earlier
Wave
An earlier wave of commercialization had been
based on indigo and opium export. These were
no longer lucrative trades after 1860. Between
1860 and 1890, indigo cultivation first shifted
from Bengal to Bihar and eastern-UP districts,
and thereafter declined generally. The reason
for the shift was the Indigo Revolt in Bengal of
1860 (see Chapter 2 on the indigo dispute).
To the west of Bengal, indigo cultivation had a
more voluntary character and was sometimes
carried out by the planters in their own
zamindari estates. It was stimulated in the UP
by the spread of canal irrigation. It persisted
until the 1870s, when the newly discovered
mineral dyes began to reduce the usage of the
indigo dye.
The opium trade and production did
not dwindle until the end of the nineteenth
century. In fact, in the first 20 years of Crown
rule, opium reached its peak volume. Despite
reports of extortion by the intermediaries, the
cultivation expanded in Bihar and Benares
mainly because it was lucrative for the peasant
and the state. The government received an
income from the Benares and Bihar product
by directly conducting the trade; and from
Malwa by collecting a transit duty on the
114 economic history of india
opium transported from Indore to Bombay.
Between 1833 and 1850, the revenue or profit
of the Calcutta trade accruing to the state was
rarely less than 200 per cent, sometimes much
more, of the expenditure on its cultivation.
The duty on Malwa opium added about 10
per cent to the opium profits. Opium was
the most important item of income after the
land taxes. From roughly 4 per cent of the
revenues in the 1790s, opium contributed
1617 per cent between 1850 and 1880, after
which it steadily declined as a contributor to
government income.8 The opium poppy was a
winter crop sown after the harvest of an early
rice crop. Poppy earned a gross receipt of Rs
40 per acre in 187980. The standard yield of
winter rice, 200 kgs per acre, and the price of
rice at Rs 0.09 per kg, would bring the peasant
a gross earning of only Rs 18 from winter rice.9
It is not an exaggeration to say that the peasant
shared in a part of the monopoly profits earned
in the trade. The volume of trade, nevertheless,
began to fall after 1880.
The end of the opium trade owed to a
number of circumstances. The implication
that the government of India had become in
effect a drug pusher in China, always called for
strenuous justification as to why the trade was
beneficial for the empire. The economics of
opium, for the peasants engaged in cultivating
poppy, changed as rice prices increased steadily
throughout the last quarter of the nineteenth
century, and shot through the roof during
World War I. The government in turn had so
far stoutly resisted all propaganda calling for
the abolition of the trade on the ground that
the loss of revenue, as well as loss of peasants
profits, would spell disaster for both parties.
There was some truth in this statement. And
yet, by 1900, and even more after 1920, it was
not clear any more that the peasants wanted to
produce opium, and the state depended less
on it, as alternative sources of revenue were
increasing in importance. The vigorous and
successful campaign by the Chinese state to
reduce consumption, and finally, international
collaboration to end the trade, added further
pressures.
Two other Bengal exports, cane sugar and
silk, experienced a decline. Cane sugar was an
export item of the Bihar districts in the first
half of the nineteenth century. The Company
had encouraged sugarcane cultivation. This
sugar was priced out of the world market
by beet sugar after 1850. However, the local
market for cane sugar grew so that sugarcane
cultivation did not disappear. Silk production,
on a small scale by part-time farmers, was
an export trade from Bengal until the late
eighteenth century. During much of the
nineteenth century it suffered a decline in
quality, and competitiveness against other
Indian, European, and East Asian silks.
One reason for this decline was weakness
in industrial organization. Earlier, many
European firms had invested large sums of
money in this industry and trade. Most of
them withdrew in the early nineteenth century.
Thereafter, the production and trade came to
be dominated by persons of small resources.
Individually, they had little money to invest in
improving the industry.
Crops: Cotton, Wheat, Rice, Sugarcane in
a Later Wave
A more lasting wave of commercialization
based on cotton, wheat and in a small way rice,
had already begun in the late eighteenth and
the early nineteenth centuries. Cotton and
wheat were both lucrative commercial crops.
After the 1850s, export of both commodities
expanded, and the two were joined by oilseeds,
tobacco, groundnut, and sugarcane.
As the Table 4.8 shows, the share of
non-foodgrains in acreage cropped increased
 agriculture 115

Table 4.8 Acreage Cropped, British India, 18911946 (annual average)

18915 19416

Million % of All Crops Million % of All Crops

Rice 66.0 37.3 74.1 36.0

Wheat 21.9 12.4 26.4 12.8
Jowar 20.9 11.8 22.1 10.7
Gram 11.1 6.3 15.1 7.3
Bajra 11.7 6.6 15.1 7.3
Barley 5.2 2.9 6.7 3.3
Maize 5.1 2.9 6.3 3.2
Ragi 4.4 2.5 3.4 1.7
Total foodgrain 146.0 82.5 169.0 82.0

Cotton 9.6 5.6 11.6 5.6

Sugarcane 2.9 1.6 3.6 1.7
Jute 2.0 1.1 2.5 1.2
Groundnut 0.4 0.0 5.6 2.7
Oilseeds 12.5 7.0 11.1 5.4
Indigo 1.4 0.8 0.05 0.0
Total Non-foodgrain 30.4 17.2 36.5 17.7

All crops (including others) 177.0 100.0 206.0 100.0

Source: Blyn, Agricultural Trends.

Note: Oilseeds include rape, mustard, sesamum, and linseed.

marginally between 18915 and 19359. It fell
during World War II, as war demand increased
food prices, and stimulated rice cultivation.
However, if the later rise of groundnut
cultivation is excluded, the most notable
changes in the cropping pattern had occurred
already before 1890. From provincial data we
know that definite shifts did occur towards
cotton, wheat and sugarcane. Sugarcane did
not occupy a large area, but added greater
value per area than most other crops (see Maps
4.14.3 for regional distribution of the major
commercial crops).
As we have seen (Chapter 2), the export
trade in raw cotton had begun before 1800,
and grew in scale between 1800 and 1850. The
direction of marketing of cotton shifted from
large domestic users of cotton, such as the
Bengal spinners and weavers, towards Britain
and also China. With this change, Bombays
business as a port began to grow rapidly.10 The
importance of Indian cotton for the British
textile industry was as yet small. The East
India Company and influential figures in the
Lancashire mill industry tried to develop India
as a major supply base for raw cotton. But they
were not successful because the quality of
Indian cotton was not suitable, and Lancashire
capitalists were uneasy about doing trade with
Indian farmers. The Cotton Famine from
1861 forced this trade upon them.
When the American Civil War broke out
in 1861, supplies of cotton from the American
South to the Lancashire cotton mills stopped
abruptly. The large excess demand for cotton,
along with speculation, led to a quick rise
in cotton and agricultural prices worldwide.
India now emerged as a major supplier (see
116 economic history of india

75 90

AFGHANISTAN
Kashmir

T I B E T

Lahore Simla
30 30

Delhi
IA
S

N E PA L
R
E

BHUTAN
P

Sind

Karachi

Calcutta
BU R M A
ges
Gan
f the
ths o
Mou

Sambalpur
Cuttack Bay
Bombay of
Bengal
Ratnagiri
Hyderabad E. Godavari
W. Godavari
15 Krishna 15
A ra b i a n
Sea Indian Ocean

Madras
80% of
S. Kanara Chingleput net Sown Area

Tanjore 60 80% of
Net Sown Area
trait
Palk S
Cochin Districts of concentration
mentioned in map
Gulf
of
Mannar 0 200 400 Kilometers
CEYLON
0 200 400 Miles

75 90

Map 4.1 Areas of Rice Cultivation

also Figure 4.1). Cotton export and prices
crashed during the latter half of the decade as
American supplies resumed. These speculative
bursts gave way to a steadier expansion in
demand and supply. From the 1860s, mills
in Bombay emerged as a new market for raw
cotton. This boom reached a peak during
and after World War I. By then Japan, which
had become one of the worlds largest textile
exporters, also purchased Indian cotton. The
Indo-Japan trade continued until the 1980s.
The increased supply of cotton export came
from a few regions that specialized in the crop.
Elsewhere cotton cultivation declined. The
main cotton areas in India became Khandesh,
south Gujarat, southern BombayDeccan,
MadrasDeccan, and Punjab.
In the 1870s, Indian wheat exports to
Europe began to grow. They grew so rapidly
that Indian wheat accounted for nearly 14 per
cent of the total British import of wheat about
1883. The immediate impetus was a fall in
 agriculture 117

75 90

AFGHANISTAN

Punjab T I B E T

Lahore Simla
30 30

Delhi
IA
S

N E PA L
R
E

BHUTAN
P

Karachi
NARMADA
VALLEY
Calcutta
BU R M A
ges
Gan
so f the
M outh

Bay
Bombay of
Bengal

Hyderabad

15 15
A ra b i a n
Sea Indian Ocean

Madras
% of Net Sown Area

> 60%

S trait 40-60%
Cochin Madura Palk
30-40%
Gulf
of
Mannar 0 200 400 Kilometers
CEYLON
0 200 400 Miles

75 90

Map 4.2 Areas of Wheat Cultivation

transportation costs. Also, under pressure from
public opinion in Britain, an export duty on
wheat sold from India was repealed. Despite
frequent and sometimes violent fluctuations,
the trend in wheat exports was an increasing
one. Wheat was exported from Punjab, UP, and
BombayDeccan. In the former two regions,
wheat was a staple consumption good. In
BombayDeccan where the staple food crops
were millets, wheat was grown for the export
market.11
In the second half of the nineteenth century,
Bengal, Burma, and Southeast Asia emerged as
the worlds main sources of rice. In Southeast
Asia and Burma, rice accounted for over half
of total export. In India, rice occupied from a
quarter to a third of total export in a normal
year. Bengal rice continued to reach other
Indian provinces, as well as settlements of
immigrant Indian workers in the Empire. They
preferred Bengal rice to the locally grown
ones. Ceylon, owing to its plantations, was a
118 economic history of india

75 90

AFGHANISTAN

T I B E T

Lahore

30 Montgomery 30

Rangpur Bogra
Mymensingh Lakhimpur
Delhi Pabna Tippera Sibsagar
IA
S

N E PA L Darrang
R
E

BHUTAN
P

Darjeeling
Muzaffarpur Dooars
Purnea Nowgong
Karachi Cachar
Sylhet
Bhopal
Indore Calcutta
BU R M A
ges Chittagong
Berar Gan
Amraoti ths o
f the
Mou Hills
Broach
Nagpur
Baroda
Surat Khandesh Bay
Bombay of
Bengal

Belgaum Hyderabad

15 15
A ra b i a n Guntur
Sea war
Dharwar Cuddapah
Cud Indian Ocean
Ku
Kurnool
Bellary
Madras % of Net Sown Area

Tea Groundnut
Nilgiri 20-30%
Cotton Jute
ait
Str 40-60% 10-30%
Cochin Palk
Cotton Tobacco
20-40%
Gulf
of
Mannar 0 200 400 Kilometers
Tinnelvely CEYLON
0 200 400 Miles

75 90

Map 4.3 Cotton, Groundnut, Jute, Tobacco and Tea

destination for Bengal rice. Burma rice, on the
other hand, went to Europe, was re-exported
from Britain, and used for the manufacture
of starch and spirits. Thanks to the use of
the telegraph, rice and wheat markets were
integrated to the extent that these grains
were often seen as substitutes.12 Rice from
Thailand and Vietnam was exported to Japan,
China, Java, and the Straits Settlements. A
failure of the rice crop in any region within
this network redirected the flow of the trade
towards the affected area, but the long-term
pattern was maintained. For example, in
18635, scarcity in China led to the export of
Bengal rice to China, and during the Orissa
famine (18678), Burma rice was imported
to Ganjam. In the early twentieth century,
the importance of Europe as a destination for
Burma rice declined, and by 1914, it was India
that received 60 per cent of the rice exports
from Burma.

Sugarcane was used traditionally to
manufacture impure sweeteners gur and
khand in small rural units. These products
had a high impurity or molass content. But
they were cheap, and ideal as off-season rural
industry. These traditional products came
into competition with modern factories
making refined white sugar from cane. But in
colonial India, white sugar did not become
widely popular. The method of production
was not internationally competitive either
(see also Chapter 6). The traditional products,
therefore, survived. Within the traditional
products, a technological advancement had
taken place with the introduction (1874) of
the two-roller mill to crush cane, in place of
the wooden mortar and pestle.13 This diffusion
of the more efficient crushers led to a rapid
growth in the manufacture of gur and khand,
and in turn, expansion in the area under
sugarcane. A further impetus for sugarcane
cultivation came from tariff protection given
to the modern part of the industry. The main
regions where sugarcane was cultivated were,
UP (which had over half of the total area under
cane in the 1930s), Punjab, Bihar, and Bengal.
These four provinces accounted for 90 per
cent of gur and nearly 100 per cent of khand
production.
The pattern of agricultural growth
contained some elements shared between
the major regions, and some elements that
were variable. Regional experiences deserve a
detailed look.
AGRICULTURE IN MAJOR REGIONS
Punjab
Punjab was a showpiece for British
administrators engaged in economic
development. The canal colonies created by
large irrigation systems, restored or started in
agriculture 119
the late nineteenth century, were examples of
the positive legacies of colonialism.
Prior to the mid-nineteenth century,
Punjab was mainly a dry area consisting of
vast wastes that supported pastoralism but
little cultivation. Monsoon rains died away in
the western part of the region, and intensive
cultivation was possible only in areas close to
rivers, or in narrow strips watered by wells.
The region, however, had large perennial
rivers formed in the Himalayas, and as the
administrators and engineers realized, this
river system had the potential for canal
irrigation on a large scale. Between 1870
and 1920, British engineers built a system
of inundation and perennial canals tapping
the waters of the five rivers. This turned
vast tracts in the doabs (interfluvial tracts),
which earlier sustained only the most basic
forms of pastoralism, into arable land. Nine
canal colonies created out of these irrigation
projects appeared, collectively irrigating five
million acres. The earliest colony was Sidhnai,
and the last Nili Bar. The largest were Lower
Chenab (two million acres), Lower Bari Doab
and Nili Bar (a million acres each, see also
Chapter 9).
In these colonies the greater part of the
available land was distributed to claimants
in lots of 1450 acres each. In allotting these
grants, the government favoured claimants of
peasant background. Agricultural labourers,
artisans or village servants were excluded.
However, former pastoralist groups did
occasionally receive land grants. Recruitment
from Hindu and Sikh peasants from central
Punjab dominated land distribution and
settlement policy. Special considerations were
made for families with a record of service to
British rule, including service in the army;
this policy saw Punjab emerge as a major
recruiting ground for the army. The grant deed
stipulated various conditions the grantees
120 economic history of india

Figure 4.1 A View of a Cotton Warehouse, Bombay, c. 1855.

The photograph shows cotton being stored before export. It was taken about the same time that Cowasji Nanabhai
Davar, a Surat merchant, established the first textile mill in the city. The picture gives some idea of the scale of the busi-
ness, and the resources of the merchants themselves who were beginning to be interested in factory industry.
British Library

needed to meet regarding the maintenance and
improvement of the land. These conditions
were often seen as undue interference. Until
1912, the land grantees were technically
tenants of the state, a situation they accepted
reluctantly. The Colonization Act of 1912
allowed them to become proprietors. If one of
the motivations behind the entire colonization
scheme was to seek loyalty of the peasantry to
British rule, it succeeded in that aim. Punjab
peasantry was, by and large, loyal to the rule in
the interwar period when peasantry elsewhere
became restless and started participating in the
nationalist movement in larger numbers.
Between 1867 and 1921, Punjab saw an
infrastructure revolution. The length of canals
expanded from less than 2,000 miles to more
than 15,000 miles, road length nearly doubled,
and railway mileage grew four-fold. Blyns data
show that between 1891 and 1920, agricultural
production increased significantly, and the
main source of output growth was expansion

in area cropped. In that respect, Punjab was
not different from the rest of India in the late
nineteenth century. The difference was that,
in Punjab uncultivable wastes had been made
arable, whereas in the rest of India, cultivable
wastes were brought under the plough in
the nineteenth century. In other words, the
marginal social returns from canals were
possibly higher in Punjab than elsewhere. The
canals raised output, cultivated area, trade and
revenue. The canals induced a shift towards
higher valued crops. Between 1873 and 1901,
the area cultivated with wheat, bajra, and jowar
increased from 9.3 million to 10.7 million.
The percentage of area cultivated with wheat
alone increased from 62 to 79 (see also Table
4.9 for more detailed data and Figure 4.2). A
new regional specialization pattern emerged.
While western Punjab expanded wheat and
cotton production, the relatively drier areas
within south-west Punjab (present-day
Haryana) specialized in livestock, dairy and
fodder crops. Commercial growth, fuelled by
agricultural trade, gave rise to towns populated
by merchants and professionals, and a new
urban commercial ethos. On the negative
side, while the ecological costs of canals in
Punjab were probably smaller than those in
UP, these costs were not absent. In some areas,
waterlogging, siltation, obstruction of earlier
drainage channels, and salination occurred on
a significant scale.
Table 4.9 Growth of Cultivation, Roads, and Railways in Punjab
Railway Mileage Canal Mileage
(000) (000)
18723 0.4 2.7
18823 0.6 4.6
18923 1.7 12.4
19023 3.1 16.9
Source: H.H. Calvert, cited by Himadri Banerjee, Agrarian Society of the Punjab 18491901, Delhi: Manohar, 1982,
p. 70.
agriculture 121
After 1921, the conversion of wastes
reached its limits. By then Punjab agriculture
had benefited also from successful plant
breeding experiments in wheat and cotton,
so that productivity continued to increase.
Lyallpur was one of the sites where superior
strains were developed. Private merchants
popularized these inputs.14
The Upper Doab
In present-day western UP and Haryana, a
dense network of canals was constructed in
the nineteenth century. In UP, canal mileage
increased from 4,751 in 1871 to 16,136 in
1921. Unlike Punjab, UP was not initially
water-scarce. Here, the availability of extra and
cheaper water encouraged cultivation of water-
intensive cash crops such as sugarcane. On the
other hand, railways encouraged cultivation
of grains and oilseeds, which were cheaper
now to transport than before. Consequently,
a broad regional specialization emerged in
UP, with the long settled canal belts in the
Western Doab taking up wheat and sugarcane,
while areas on the periphery, in Bundelkhand
and the submontane districts, shifted to other
grains and oilseeds. Other crops to have
benefited from canal irrigation were barley and
maize. Indigo and sugarcane were cultivated
over smaller areas. But they were significant for
the regional economy.
Metalled Road Cultivated Area
Mileage (000) (million acres)
1.0 18.8
1.5 23.4
2.1 26.7
26.8
122 economic history of india

Figure 4.2 Construction of the Head-works of the BariDoab Canal, c. 1870.

One of the earliest constructions in Punjab, the canal served an extensive area on the tracts between the Beas and the
Ravi. The picture conveys an idea of the planned scale of the canal.
British Library

Foodgrain was not exported from the
Doab on a large scale before the 1870s.
From that decade it quickly became an
important trade. Agents of European
grain-exporting companies were based in
the major trading-cum-financial towns that
also became connecting points of railways,
and road or river routes. Examples include
Mirzapur, Farrukhabad, Lucknow, Kanpur,
Allahabad, and Agra. The railways and new
roads connected the smaller towns in the
interior, which had large weekly or biweekly
spot markets, with those large towns where
markets were permanent and trade was based
on long-term contracts. Indigo became a cash
crop in the Doab from the 1860s. Owners of
indigo factories were usually zamindars, who
contracted with other cultivators to produce
indigo and sell the former at a pre-agreed
price. Sugarcane was already a commercial
crop, and sugar a major product in local trade
in the DoabRohilkhand region, during the
Companys rule. The growth of canals and
transportation gave this crop a stimulus from
the 1860s. Sugar mills and small refineries
(khandsari) rapidly grew in number, many
were owned by the local zamindars.

The Deccan Plateau
Much of interior peninsular India is located
on the Deccan Plateau, a region bounded in
the north by the Vindhya and Satpura ranges,
in the west by the Western Ghats, and in the
east by the Eastern Ghats. The Deccan can
be divided into two broad administrative
regions, BombayDeccan comprising of
districts in the Bombay Presidency, and
MadrasDeccan comprising of districts in the
Madras Presidency. Poor soil and unreliable
rainfall had made most of the Deccan a
millet-growing region oriented to subsistence
agriculture. However, the black soil zones
were suitable for the cultivation of cotton.
Cotton cultivation and trade had been growing
slowly in this region through the first half of
the nineteenth century. In the second half of
the nineteenth century, two developments
facilitated the process. By connecting Bombay
with the cotton growing regions in the interior,
the railways stimulated cotton cultivation
and trade. Second, a network of canals was
created in the Nira river valley south of Poona
as a famine protection measure. The canals
attracted migrant farmers from outside the
region, who had the knowledge and the capital
necessary to induce a successful switch from
millets to sugarcane. The Nira river area
later became a major concentration of sugar
manufacturing.
The main cotton regions included the
southern part of BombayDeccan, south
Gujarat, and Khandesh. Groundnut was
grown in Satara, and sugarcane along the Nira
canal system. A number of towns became
markets for cotton, and eventually some of
them became centres of textile production
where spinning mills and migrant handloom
weavers lived in symbiosis. Sholapur was
perhaps the most important example of this
interdependence.
agriculture 123
Land was cheap in the entire Deccan
plateau and remained so until World War
I. Cultivated area increased by 67 per cent
between 1843 and 1873 in BombayDeccan.
Cotton led the increase, but there was no
decline in foodgrain area or availability. It is
hard to discern if there was any significant
acreage expansion anywhere in the Deccan
plateau thereafter. In Bombay Presidency,
different sources of data point to different
conclusions about acreage expansion.
Charlesworth cites census statistics to argue a
13 per cent increase in acreage between 1900
and 1920; Mishra disputed the conclusion.
McAlpins data also suggested a broadly
unchanged acreage in Bombay.15 The precise
extent of change, therefore, remains an open
question. The conservative conclusion that
acreage did not change at all should not
be surprising, given that it was ordinarily
expensive to expand cultivation in the Deccan
plateau with private means. The principal
issue was water. The only technological option
available was wells, which were expensive and
uncertain as an investment in the dry areas.
It would be hard to expect that merely the
promise of a better price, which the railways
did promise, would induce a large number of
peasants to take up highly capital-intensive
methods of acreage expansion, especially when
markets for long-term capital were as good as
non-existent.
The scholarship suggests that the crop
composition changed in the plateau despite
these constraints. Overall acreage depended
on capital, but shifts within a given acreage
depended on relative prices. These shifts
occurred, if on a limited scale. Cotton and
oilseeds acreage grew relative to millets,
implying a positive impact on peasant incomes
of the new export market prospects. What is
also clear is that in smaller pockets where the
cost of expanding acreage had been brought
124 economic history of india
down by government irrigation schemes, the
effects on both acreage and crop composition
were positive.
In MadrasDeccan too, overall acreage
trends remain uncertain, but there was
significant growth in cotton and groundnuts
in the early twentieth century after the
railways connected the region with Bombay.
There were shifts in cropping pattern and/or
direction of trade. There was some switching
from millets to cotton, oilseeds, and fodder
crops. Between 1871 and 1921, prices,
acreage, road mileage, and the number of
carts for transportation expanded in Bellary
district, and there were signs of greater price
integration between regions.16
Western India outside Deccan Plateau
Outside the Deccan plateau, western India
consisted of a wet coastal region, the Konkan;
and a dry coastal region, south Gujarat.
Konkan grew paddy. Poor communications
and the absence of railways left the rice-
based Konkan out of the new commercial
network, and turned it mainly into a labour
exporter to Bombay city. Railways and
the cotton famine stimulated agricultural
prospects in the Charotar region of south
Gujarat. Nadiad town, a market for tobacco,
became easily accessible from both Bombay
and Ahmedabad in 1863. Land devoted to
tobacco possibly more than doubled between
1870 and 1900. Being a capital-intensive
crop, tobacco cultivation apparently increased
inequality while offering profit opportunities
to the richer class of farmers. The number of
irrigation wells doubled. In the early twentieth
century, large cultivators here also took
an interest in dairying, which encouraged
processing industries on a small scale. The
number of milch cattle doubled between 1900
and 1915, while the number of plough cattle
increased only 1020 per cent in the same
period.
Eastern India
Eastern India was a geographically diverse
territory. The province of Bengal alone
included at least four zones sharply distinct
from each other in respect of settlement
pattern, transport and communication,
resource endowments, and historical
experience. One of these four sub-regions,
the submontane, was only a small strip of
land. The other major regions were the fertile
alluvial floodplains of the Ganges, the semi-
arid laterite zone bordering Chota Nagpur,
which was an outer extension of the Deccan
uplands, and the fertile but remote southern
seaboard. The alluvial flats spanned the
floodplains of the Ganges river system, and
were by far the largest of the three zones. Much
of this land is presently located in Bangladesh.
Within this region, the existence of all-weather
waterways made the river banks stand out as
the commercial and political centres, whereas
the further an area was from the river the
smaller its commercial potential until the
railways came in. The uplands were made
up of the eastern projection of the central
Indian plateau, spanning Bengal and Bihar. In
cultural and economic terms, these territories
combined features of the alluvial and the
upland zones, but they were poorly endowed
with soil and water. The seaboard, despite the
vast waterways that ran through its middle,
was commercially not the centre. A large
part of it consisted of forests. There were few
industrial and commercial settlements, and
while there was trade in grain, dried fish, and
salt in the lower delta, the scale of these trades
was not very large. From at least the eighteenth
century, if not earlier, the seaboard regions
saw immigration and settlement of groups of

peasants. However, even in 1900, vast areas
of the Sundarbans remained quite remote in
respect of trade in grain.
Unlike Punjab or western India, the
alluvial plains in Bengal did not see major
changes in cropping pattern. It remained
paddy based. There were only marginal
shifts, such as the decline of indigo and the
rise of jute and sugarcane. The effects of
this commercialization tend to be seen in a
pessimistic light. Between 1860 and 1940, the
population of Bengal increased, and so did the
pressure on land. Many historians consider
that the peasantry of Bengal was progressively
squeezed from two sides, land shortage, and
increasingly harsher forms of exploitation
first by landlords and later by moneylenders,
or some combination of the two classes.
Conditions of the peasantry were depressed
in the course of commercialization, and the
Great Depression made them poorer. Indirect
supporting evidence for this pessimistic
view comes from production and yield data
that show regression in interwar Bengal and
rice crops. Going somewhat against these
pessimistic views, there was consolidation
and stability among occupancy tenants, partly
owing to commercialization, and partly, to new
laws protecting tenancy.17
Commercialization, with or without
significant effects upon production or
yield, did take place due to the railways and
industrialization. The main railway lines that
connected the interior agricultural districts
with the ports or market towns were more or
less completed between 1854 and 1885. The
pre-railway transportation system consisted of
overland or river-borne trade. Overland traffic
was expensive and slow, especially because of
the large number of rivers. Water transport
was impossible during almost eight months of
the year because of the low water level or poor
navigability of many of the major rivers. These
agriculture 125
eight months included the harvest seasons.
The railways quickly drew trade away from
the rivers, and increased the volume of trade.
The extent of commercial production and
the direction of trade, changed between 1860
and 1900. The period saw an increase in the
size of new population clusters based on non-
agricultural activity. These included Calcutta
itself, the Raniganj mining-industrial area,
Serampur industrial area, and north Bengal
and Assam plantations. These towns were
points of demand for rice. Rice was exported
to other British colonies. In the eastern
districts, from the 1850s, demand from the
newly established jute mills near Calcutta, and
demand for raw jute from jute mills elsewhere
in the world stimulated jute cultivation.
Assam experienced a different path of
agrarian development. The infrastructure
revolution did not leave the region untouched.
400 miles of railway track were laid in the
last quarter of the nineteenth century. Dense
river traffic already connected lower Bengal
with Assam. However, the multiplier effect
of these developments on the regional
agrarian economy was limited, according to
most economic historians of Assam. Much
of this development was meant to serve
the tea plantations sector, which expanded
significantly. Because so much of the new
infrastructure was tailored to the plantations
in the foothills, the plains were still relatively
underpopulated, and Assam in 1901 was
one of the few land abundant regions left in
South Asia. In the early twentieth century, this
open land frontier received a steady stream of
immigrants, peasants from eastern Bengal in
search of farm land. Cropped area increased.
Foodgrain production in these new frontiers
remained mainly subsistence oriented.
These developments affected the pattern
of urbanization. For example, the importance
of Gauhati had earlier been more political
126 economic history of india
than economic. Between 1870 and 1940, it
emerged as a port of transit. The town became
a commodity-trade station, exporting cotton,
silk, lac, mustard seeds, and forest produce,
while importing salt, textiles, and foodgrains.
Nearly the whole of this business was in the
hands of Marwari merchants, some of whom
set up grain mills, cotton ginning units, and oil
presses late in the interwar period.
Coastal Andhra
Canal irrigation expanded in the delta
districts, Godavari and Krishna between 1847
and 1852. The high tax burden, transport
bottlenecks, and other problems initially
restrained the commercial potentials of
paddy, the main crop. As these constraints
eased, long-distance trade in paddy began to
expand. The canals encouraged diversification
into oilseeds, sugarcane, tobacco, turmeric,
chillies, and plantains. The cultivated area
increased significantly in the second half of the
nineteenth century. The agrarian expansion
stimulated grain trade and credit markets.
These activities were concentrated in towns
that rapidly grew in population and economic
importance. They included Vijayawada, Eluru,
Rajahmundry, and Vizagapatam. Markets and
transportation systems also enabled regions
within Coastal Andhra to specialize. An
example of extreme specialization was Guntur
district where the bulk of Indias tobacco crop
came to be grown.
Tamil Nadu
What is presently Tamil Nadu consisted
of several agro-ecological regions. In the
coastal wet districts (mainly Tanjore and
Chingleput), paddy was of overwhelming
importance.18 This region resembled deltaic
Bengal and Coastal Andhra in cropping
pattern. In the drier interior districts of Salem,
Coimbatore, and Trichinopoly located on
the edge of the Deccan Plateau and similar to
MadrasDeccan, coarse rice and millets were
initially the major crops. In the first half of
the nineteenth century, large canal irrigation
projects were constructed on some of the
major rivers, and extensive road building
also occurred. Canal water was mainly
concentrated in Tanjore, which was situated
on the Cauvery delta and was a rice-growing
district. On this foundation, inter-regional
trade expanded in traditional commodities
such as rice and garden crops. The dry
regions of Tamil Nadu included tracts with
black soil suited for cotton. The demand for
raw cotton produced in Tamil Nadu (mainly
in Coimbatore, Ramnad, Madurai and
Tirunelveli districts) increased from the 1830s
and rose quickly after the 1860s. Raw cotton
trade introduced new marketing and financial
systems. It was a major source of livelihood
in small towns where cotton was processed
and packed for export. In the interwar period,
cotton improved its position as a cash crop
because of the growth of a mill textile industry
in Madras and Coimbatore. The second
most important cash crop was groundnut,
grown extensively in north and south Arcot.
The export market for groundnut grew with
the expansion of modern food processing
industry in Europe. Commercial expansion
and rising prices reduced the real burden
of taxation. When added to the increased
profits from cotton exports, this factor
encouraged private investment in the form
of irrigation wells. Wells became the main
irrigation system in Coimbatore and Madurai
districts, and played a key role in the post-
Independence green revolution in Tamil
Nadu.

Central India: The Narmada Valley,
Chhattisgarh, and Berar
Different parts of central India specialized in
wheat and cotton. In turn, expansion in these
crops saw some contraction in locally grown
sugarcane, and left millet acreage more or
less stagnant. The key driver in this story of
commercialization was the railways rather than
new systems of irrigation.
The black soil of the northern districts
of the Central Provinces and Berar, and
the Narmada Valley, was ideally suited for
wheat cultivation. The main wheat zone in
central India was spread over Saugor, Damoh,
Jubbulpore, Mandla, Seoni, Narsinghpur,
Hoshangabad, Nimar, and Betul districts. Over
half of the cropped area in these districts grew
wheat, and these regions emerged as the main
wheat exporting ones outside Punjab and
western United Provinces. The conditions of
irrigation were different here. Rainwater was
trapped on the land by constructing banks to
increase the moisture of the soil in the drier
months. In some cases, a rice crop was grown
in this water just before the wheat sowing
season. Such special systems of irrigation,
however, depended on cooperation between
neighbours, and also depended for their
effectiveness on the heaviness of the soil.
Major railway lines connecting the Central
Provinces and Berar with Bombay, Calcutta
and northern India were completed between
1860 and 1880. The railway link between
Jubbulpore and Bombay opened in 1870.
Within the next five years, wheat export from
Narmada Valley almost doubled. The peak
was reached in 188891, when wheat exports
accounted for nearly half of all exports from the
Central Provinces and Berar. In these 20-odd
years, acreage cropped in the whole province
increased from 3.54.2 million. Thereafter,
agriculture 127
a series of bad harvests and competition
from Argentina reduced the scale of wheat
cultivation in central India, and there was
diversion of crop area to pulses and other grain
crops. However, the growth impetus did not
immediately slacken, for by then the region was
beginning to see some industrialization. 19
Cotton cultivation in Wardha and Nagpur,
and several other districts to the west, was
stimulated initially by the cotton famine. But
Lancashires interest in Berar cotton waned
afterwards. A revival occurred at the turn of
the century when government experimental
farms tried to encourage cotton cultivation in
the region. The farmers rejected attempts to
promote the long-staple cotton preferred by
Lancashire, but did expand the hardier short-
staple varieties which found a market in Japan
and Europe. Between 1900 and 1920, cotton
acreage in the province increased from 0.91.4
million. The area, by then, was beginning to
develop as a centre of mill industry, and the
countryside was dotted with cotton gins. Berar
emerged as the destination of one of the largest
streams of internal migration, farm labourers
from Chhattisgarh.
The railways had a similar effect, if on
a smaller scale, on rice and oilseeds export
from Chhattisgarh. Chhattisgarh, otherwise
with poor access to ports and railways, found
an outlet for its products from 1883 when
a rail link opened between Nagpur and
Rajnandgaon. But in the main, Chhattisgarh
supplied labourers to expanding agrarian
regions.
Sind
Sind is proverbially a gift of the Indus,
containing a vast alluvial plain watered by the
great river and several other man-made or
natural channels. Although the larger region
128 economic history of india
received little rainfall, and had to live with
extreme dryness and heat, a considerable tract
of land in southern Sindh or Lar, was subject
to the inundation of the Indus. When the flood
water receded, the lands were used to grow
rice. The alluvium and the organic substance
the floods left behind, made these lands
exceedingly fertile, giving rise to three crops,
and some of the highest yields of rice known
in the subcontinent. Additionally, Sind had
long been watered by a network of state canals
so that the proportion of irrigated area in total
cultivated area was always well above the sub-
continental average.
Immediately after the British assumed
power in 1842, a Canal and Forest Department
was established to look after this network. The
Department, though initially not manned by
engineers and engaged mainly in de-silting
operations, decided that a dam at the Sukkur
gorge would be a good idea. The Sukkur
Barrage Project, consisting of a dam and a
system of canals, had to wait nearly a century
before it was finally operational. But canal
construction was not neglected. Between
1875 and 1900, 15-odd major canals were
constructed, the largest being the Jamrao.
Another set of canals were constructed in
19212, the largest being Western Nara. Taken
together, these irrigation works extended
net sown area in Sind from 1.4 million acres
in 1885 to 3.9 million acres in 1925. Canal
irrigated area increased from 1.22.8 million
in the same period. There was considerable
growth of commodity trade between 1870
and 1930, thanks to extension of the Karachi
port, customs reforms on the western border,
the extension of the Indus steamboat business,
and finally the creation of a railway line that
connected, in stages, Karachi with Hyderabad,
with Multan, and finally Lahore (completed
in 1878). The main crops grown in Sind were
rice (based on inundation water), wheat and
millets (dry season), and cotton. There was
no marked change in this pattern after canal
construction. However, wheat and cotton
grew in relative importance within the basket
of crops, which was an effect of the export
market, and the Jamrao Canal in particular.
LAND, LABOUR, AND CREDIT
MARKETS
Land Market
As we have seen in Chapter 2, the colonial
property rights reforms, implemented over
a period of 30 years from 1793, introduced
two new elements in the Indian village. The
first element was an end to the tax collection
rights that the groups in command of military
resources had earlier enjoyed. Tax rates were
fixed, and tax collection became a state office.
Second, the welter-of-rights problem was
resolved by recognizing only ownership rights.
Having acquired a redefinition of property
rights, land could now be a source of private
investment. The return on land became in
theory measurable, and therefore comparable
with other uses of capital, attracting moneyed
people, including peasants, to deal in land. As
B.B. Chaudhuri observes, the landed society
ceased to be a closed one, and any moneyed
person could become a landed magnate.20 Land
could now be purchased because it could be
made more productive, enabling capital gains.
Or, land could be purchased in expectation of
future scarcity, and again, the promise of capital
gains.
How universal and deep rooted was the
activation of a land market? In Bengal, for
30 or 40 years after the zamindari settlement
began, a lot of land came into the auction
market because zamindari tax was unaffordable

for many proprietors (Chapter 2). In the
ryotwari areas, peasants mortgaged their land
more frequently than before. Moneylenders
promised to pay rents in advance, which was
an incentive to take a loan against crop or land.
Some ryotwari lands also changed hands from
peasants to moneylenders. Such land sales by
defaulting taxpayers heralded a new trend.
In northern and southern India, remnants
of the pre-colonial military and priestly groups,
who owned land but did not cultivate with
their own hands, sometimes sold their way out
of the village, as part of a larger strategy to shift
from landed to literate occupations. Peasants
and labourers, and more rarely moneylenders
and service sector workers, were the buyers.
The decline or withdrawal of the non-
cultivating elites and the consolidation of
the peasantry left asset inequality broadly
unchanged.21 The general character of land
transfers, in other words, was not from the
poor-to-the-rich, as neo-Marxist historians
contended in the 1970s, but contained a
significant element of the rich-to-the-poor as
well.22
Paradoxically, even though land was more
easily marketable now than before, land
was marketed to a rather limited extent.23
According to one estimate, between 1882 and
1945, secure cultivation rights that changed
hands formed no more than 0.51 per cent
(average annual) of total area under such
rights in Bengal. In a South Indian district
in the first decade of the twentieth century,
the percentage of land to change hands was
1.52.2 per cent. Mortgaged area is usually a
good predictor of net sales. In Punjab in the
early twentieth century, net mortgaged area
(the difference between mortgages entered
into and those retired) was usually less than 1
per cent of total area.
Several factors contributed to making the
land market rather sluggish. The conditions
agriculture 129
of commercial expansion were limited to a
few areas. Outside these pockets, in the arid
regions, for example, peasant entrepreneurs
did not have a strong enough reason to buy
land in large quantities. Potential sellers held
on to land for its insurance or status value.
Along with weak incentive, there was also
a legal reason why the land market was not
very active. Colonial law created private
property rights but founded inheritance
and succession laws upon local custom and
scriptural codes, which put the rights of the
extended family before that of the individual
(see Chapter 2, law and justice). In land, the
desire to protect the rights of the collective
was a concession to the economic power that
peasant lineages already possessed. The new
regime reduced one kind of transaction cost
in the land market by removing the welter of
rights, but introduced another by embedding
individual ownership within the rights of the
family, caste, or community. The outcome
was a regime that was ambiguous, encouraged
conflict between individual and joint rights,
used documents written in a mixture of
English, Persian, and vernacular. These were
frequently unreadable, and open to constant
reinterpretation by judges. In this way, land
law slowed the transition to a more capitalistic
form of agriculture. Without the ambiguity
in law and the consequent transaction costs,
profitability could potentially have played a
larger role in land transactions.
The expansionary condition ended about
1920, as the supply of land ran out. Rents
and land prices began to outpace agricultural
prices. The export market for grain collapsed.
Terms of trade between agriculture and
manufacturing turned against agriculture.
Between 1860 and 1880, land price in a
semi-arid Madras region increased four-fold,
reflecting not land improvement but rise in
grain prices.24 After 1900, land price increased
130 economic history of india
sharply in most provinces. Land prices in arid
Kurnool increased ten-fold between 1900 and
1950. In Punjab, average land price increased
more than tenfold between 1900 and 1945.
In the same period, agricultural prices had
trebled.
Tenancy or Market for User Rights
Peasants sometimes leased land from others.
The scale of tenancy increased in the colonial
period. The increase may not all have been
real. In part, it may reflect a shift from
customary to formalized tenancy relations.
Customary tenancy was not always recognized
or recorded as tenancy. While British rule
recognized proprietary rights on land, there
was confusion over sub-proprietary rights.
Many such rights had been customary in
nature. Only a part of these customary rights
did the new regime understand and legalize. As
a result, secure tenancy rights, or occupancy
tenant rights were rare. Below these superior
rights, insecurity of rights to cultivate a plot
was extreme, higher in the new regime, and
increasing over time.
For example, in the zamindari areas, all
peasants were technically tenants without
ownership rights. And yet tenancy was not
subject to laws protecting tenant rights until
much later. This imbalance empowered the
zamindar. Some zamindars used their power
to exploit the weaker peasants, usually with
the help of dominant peasant clans. A series
of tenancy acts (18591928) recognized and
strengthened the occupancy rights, or the
so-called raiyati rights of peasants settled on
a piece of land for many generations. In other
regions too, tenancy protection was a general
trend in this time.
Such moves could have ambiguous effects
on the land market. On the one hand, by
strengthening cultivator rights, it could
encourage mortgage and eventually more
transactions in such rights. On the other
hand, with the superior tenant receiving
legal protection, it could make the tenant
something like a small-scale landlord and
encourage the sublease market. In practice,
tenancy regulation did encourage subleases.
Demand for lease shifted continuously
outward. Tenancy regulation tried to keep up
with this trend, but never quite managed to
do so. In effect, a large number of these leases
were unregulated. Outside Bengal, protection
of superior tenants had a similar effect on the
land market, that is, push in the market into
lease rather than ownership rights. This is
a process that contemporary sources called
subinfeudation.25
The average rents that the tenant paid to the
owner, or the superior rightholder, increased
from the late nineteenth century. There were
episodes of rising rent, especially in the Bihar
districts, in the second and the third quarters
of the nineteenth century. But a sustained
trend does not emerge until later. Nominal
rents increased manifold between the early
twentieth century and mid-twentieth century
in North India. In agriculturally prosperous
coastal Andhra, grain rents more than doubled
between 1860 and 1940 even as real wages
remained almost unchanged. I have discussed
above how land price or the present value of
future rents was increasing too. In Bengal, real
rents did not increase in the early twentieth
century, though there had been episodes of
rise in rent in the nineteenth century. Real
rents were stationary in upland Maharashtra
as well. In both regions, overexploitation of
land and/or overpopulation had so exhausted
the agricultural economy that there was not
enough demand for land. Further, tenancy laws
did have some effect in checking rent rates.

Labour Market
The extent of wage labour and migrant labour
employment increased in colonial India. The
neo-Marxist historiography cites a variety
of push factors to explain the trend. New
property rights in land, decline of handicrafts,
high risks associated with grain exports and
consequent peasant indebtedness, pushed
small peasants to landlessness and wage labour.
Early statements of the thesis processed
census occupational data to show a significant
increase in the proportion of agricultural
occupations in the workforce, matched by a
fall in the proportion of handicraft industries
in the workforce (Table 3.9), and an increase
in wage labourers in the agricultural workforce
(Table 4.10).
The pessimistic reading of these ratios did
not go unchallenged. A revisionist account
argued that landlessness as such did not
increase in rural India, but older forms of
landlessness associated with caste gave way
to a new form associated with wage work.26
The census occupational surveys, which were
better able to observe market participants
than non-market arrangements, captured
this institutional change. The rural crisis
theory received further criticism in five sets
of scholarship. Research on national income
showed that average rural incomes increased
in the 50 years before World War I. Regional
Table 4.10 Wage Labourers in Agricultural Workforce, 190131 (%)
Total
1901 19.5
1931 36.3
Sources: S.J. Patel, Agricultural labourers in modern India and Pakistan, Bombay:
Asia, 1952; J. Krishnamurty, The Growth of Agricultural Labour in India, Indian
Economic and Social History Review (IESHR), 9(4), 1972, pp. 32732.
agriculture 131
agrarian history revealed the rather limited
extent of dispossession of the peasantry from
land. Historians of industrial labour showed
that many workers in the cotton textile mills
were in fact landowning peasants, and nearer
the elite than the proletariat. Moreover careful
scrutiny of the census data found the evidence
on proletarianization to be weak with male
workers, and strong with female workers
(Table 4.10).27 Research on peasant decision
making showed that crop choices responded
to prices and profitability, implying that the
peasants were ordinarily capable of capturing
gains and avoiding losses.28
A recent reappraisal of the census data
offers an account of the transition in the
labour market based on the proposition that
supply of labour was a family decision rather
than an individual one.29 What the census
data captured was neither an across-the-board
proletarianization nor an across-the-board
shift from informal to formal labour contract.
Rather, there was a reallocation of rural
and artisanal men to urban industry, and
a reallocation of domestic and artisanal
women to agricultural wage labour. A certain
segment of the migrants from rural to urban
occupations consisted of rural labourers
who had formerly been part of a caste-based
attached labour relationship. These customary
long-term contracts in agriculture had been
male biased. There were few women in these
By Gender
Men Women
14.3 30.2
19.5 43.8
132 economic history of india
arrangements. These systems were in decline
in the late nineteenth century. As attached
labourers were replaced by those hired in
the casual wage-labour markets, the entry of
women in rural labour markets increased. On
the other hand, rural women were less likely
to move to the cities because they married
early and had children to look after. It is men
who migrated into new industrial jobs in large
numbers. The majority of those women who
stayed behind reported themselves to the
census as agricultural workers.
Agrestic slavery and serfdom had been
relatively rare in pre-colonial India. The closest
equivalent of serfdom was a caste-based
obligation to perform labour, and the presence
of implicit restrictions on ownership of land.
In some situations, such as pre-colonial
Malabar, individuals so tied to land were in
effect sold when the land was sold.30 But a
more prevalent form of labour-tying was the
farm servant contract whereby the male head
of a family pledged his labour, sometimes his
familys labour, for one, two, or three years,
to a specific employer. There is some dispute
over the reason why any tying was practised.
While caste sometimes cemented these
relationships, the economic motivation needs
to be understood in terms of hoarding labour
for use during peak seasons. Timing of rainfall
was a life and death matter for peasants in
monsoon agriculture. For many employers, it
was well worth paying subsistence to a person
throughout the year against assured supply
of effort on the few days when sowing and
harvesting must necessarily be done. The
average duration of employment contracts,
however, was in decline in rural India from
the late nineteenth century. The percentage of
farm servants in agricultural labour households
was falling everywhere. In Madras, where farm
servant contracts were particularly prevalent,
the fall was dramatic.
An increasing supply of migrants reduced
the employers need for labour hoarding. From
the late nineteenth century, certain poverty-
stricken areas provided a seasonal agricultural
workforce. Large numbers migrated every
season from the uplands of Godavari, Krishna,
Guntur and Vizagapatam districts to the
KrishnaGodavari delta for farm work. Many
from Chhattisgarh went every cotton season
to Berar cotton fields and gins. The wheat
field of Narmada Valley, that is, Jubbulpore,
Saugor, and Damoh, received migrants from
UP in the north and from Rewa, whence the
Gonds descended the hills during harvests.
Bihar workers migrated to Bengal in the jute
harvest season. Azamgarh workers were
recruited for large-scale earthwork in Bengal.
From Ratnagiri, many went to work in the
cotton fields of Broach. Punjab canal colonies
received migrants from Rajputana. Agricultural
labourers also went to the plantations, urban
services, railways and other public works,
and rather more rarely, to the mills. These
shifts, or reallocation, were not just transfers
of population between locales and jobs, but
involved transfers between labour institutions.
When rural workers left their village, they
left more, or less customary contracts to take
part in wage labour. Therefore, migration also
hastened the break-up of customary terms of
employment.
With labour becoming more mobile than
before, markets should have integrated and
wage rates converged across markets. A test
conducted for the nineteenth century finds
evidence to suggest an absence of convergence
in wages.31 This is not a surprising result since
the movements of migrant labourers happened
along specific channels as the preceding
paragraph shows. There was nothing yet like
a sub-continental labour market. Despite the
availability of many new roads along which
labour from one area travelled to another to

work, these roads did not cross. Given the
caste-segmented nature of all labour markets,
and the still persistent force of custom on
many types of wages, it is doubtful whether
migrant workers ever competed with locals
sufficiently to lead to a levelling of wages.
Were the workers made any better
off by these new opportunities and the
commercialization? The question will be
answered in a later section on standard of
living.
Credit Market
Official banking enquiries conducted late in
the interwar period estimated a large growth
in rural credit, a development that caused
more worry than celebration in administrative
circles.
Commercialization increased peasant
dependence upon working capital credit. For
example, the decision to produce non-food
crops meant that the peasant had to buy food
from the market, which could lead them
to borrow. The monetization of rent and
tax, combined with the disparity between
seasons of tax collection and harvests,
required money advances. Cash crops like
wheat or cotton needed finance because,
being traded over long distances under prior
contracts, these involved more investments.
Commercialization increased the demand for
relatively high cost inputs. Sugarcane, cotton
and tobacco require water and nutrients.
Therefore, they needed greater investment in
land preparation (levelling, ploughing, and
in turn, cattle, and implements), irrigation
(more and deeper wells, more buckets, etc.),
and fertilizers. Cotton crop on black soil was
not too water intensive, but needed heavy
ploughs and many bullocks. These crops
demanded more investment in money and
time. They remained on the field longer than
agriculture 133
most foodgrains and thus required a longer
waiting period between investment and sale
of crop. On the supply side, the creation
of property rights in land, and investment
in water, enhanced the mortgage value of
land. The railways, growth of market towns,
and new profit opportunities increased the
mobility, migration, settlement, and enterprise
of persons of trader-moneylender castes.
Legislation concerning credit contracts gave
the creditors more power to recover loans.
Earlier, tax collectors and village officers could
in principle negotiate between the lenders and
debtors. In colonial India, these intermediate
agents were gone, and the law defined credit
contract as a bilateral one with the courts
being the only arbiter of disputes.
The new relationship between the debtor
and the creditor in the Indian village became
controversial among administrators and
among historians. The generic term for
the resident capitalist, mahajan, carried a
disreputable connotation almost everywhere.
The event that became a catalyst in shaping
official standpoints on rural credit was
anti-moneylender riots in Poona and
Ahmednagar districts in the summer of 1875.32
Almost no lives were lost. In a few dozen
houses belonging to Gujarati and Marwari
(but interestingly no Maratha Brahmin)
moneylenders, property and account books
were burnt by peasant mobs. With the
memory of the mutiny still fresh in their
minds, officials panicked and far more was read
into these disturbances than they deserved. In
one modern view, the Deccan riots resulted
from the increased economic and political
power of the moneylenders and the threat
of peasants losing their land. In another
view, however, the Deccan riots occurred
due to specific circumstances created by the
end of the cotton boom of the 1860s. Neil
Charlesworth suggested that the significance of
134 economic history of india
the Deccan riots was exaggerated. Ian Catanach
too saw it as an event not as serious as once
thought. More generally, Eric Stokes suggested
that such outbursts were a symptom of a new
moral economy of right and wrong rather than
a real dispossession. The official response,
however, displayed considerable caution. The
Agricultural Debtors Relief Act (1879) greatly
restrained the scope of land transactions and the
mortgage market.
Open or dormant peasant hostility to
the moneylender was quite widespread in
northern and western India in the last quarter
of the nineteenth century. A second region
where growth of credit caused much alarm
was Punjab. Here, the canal colonies had given
a big push to land prices and landmarket
transactions, as well as the mortgage market.
Officials felt, perhaps with some reason, that
the control of professional moneylenders over
rural assets was increasing to the detriment of
the peasantry. The Punjab Land Alienation Act
(19001) followed, to again restrain mortgage
and transfers.33
The broadly negative view of the officers,
especially those in the Punjab and Deccan,
upon the role of the creditor has been
reinforced by economic history scholarship
in the more recent times. Without doubt
some of the highest interest rates occurred
in rural lending (Table 4.11). One possible
interpretation of such rates would be to
assume, as many historians have readily done,
that peasants as a class had inferior bargaining
power, and the peasant as an individual had to
depend on a monopolistic creditor. The credit
market was imperfect, the lender could control
the terms of credit. Knowledge and power
were unequally distributed between the debtor
and creditor thanks to new laws that favoured
the creditor, and to asymmetric distribution of
accounting and legal literacy. Historians have
used the term dependence in the context of
increasing indebtedness, and necessarily as bad
news for the peasant.34
It is, however, possible to interpret the
situation in a somewhat different light. The
high cost of borrowing in rural India reflected
the unsecured nature of these loans, and the
high risks of harvest failure, in addition to the
more conventional forms of market failure.
Although the interest rates were high, clearly
they did not deter fresh borrowing or fresh
lending, which should suggest to us that at
least some peasants had the means to repay
in a good harvest year, making the business
break even. In reality, peasant borrowings
could mean either prosperity or misery. In the
1920s in Punjab, debts were associated with
an agricultural boom. Increasing expected
income fuelled asset acquisition.35 Debts
financed growth, urbanization, emigration,
land purchases, and commodity production.
Credit was a sign of creditworthiness. On the
other side, in lower Bengal, peasant loans were
often used to ward off hunger.
How sound was the fear that land transfers
between peasants and moneylenders were a
threat to the economic and political stability
of the village? Until the third quarter of the
nineteenth century, professional lenders
were indeed visible in many regions of India.
They included Marwaris, Banias, Chettiars,
and other assorted trading-financier castes.
They did have an influential position in the
grain trade and they sometimes owned land.
But both the distinctness of a moneylender
class, and the extent of its power over land,
declined over time in nearly all regions. Land
transfers from the peasant to the professional
lender happened on a limited scale. There
were substantial barriers to the entry of non-
agricultural classes into agriculture. Merchants
and moneylenders in general were willing
to lend short term, and many new purchases
of land in different regions were made with

borrowed money in the twentieth century
at least. But rural financiers were unwilling
and unknown to involve themselves in
landownership. Even if buying new land had
become easier than before, taking possession
of land was never easy for an outsider, partly
because of the opaque land laws. A great
number of land transactions, therefore, were
internal to the peasant economy, even internal
to kin, clan, and caste.
For the very reason that land transfers
between peasants and non-peasants posed
large transaction costs, much rural credit
business came into the hands of the rich
peasant rather than the professional lender.
Credit to the poorer peasant became
integrated in trade-credit transactions rather
than land mortgage transactions. In the long
run, rural credit came mainly from landowners
or superior right-holders. The rich and middle
peasants commanded the credit market,
rather than the other way around. The general
situation bears out Stokess conclusion on
the Narmada Valley, no real distinction
could be observed between agricultural
and non-agricultural classes.36 Even where a
moneylender class could still be distinguished,
their power to influence the terms of
transaction were often limited, a point made in
the context of Punjab and Bombay.37
Interest rates in rural lending were not
only on average higher, they also showed,
Table 4.11 Interest Rate (per cent per year)
Type of Loan 1772 1812
Peasant loan 3040 2436
Land mortgage1*
Land mortgage**
Source: For full details, see Tirthankar Roy, Factor Markets and the Narrative of Economic Change in India 17501950,
Continuity and Change, 24 (1), 2009, pp. 13767.
Notes: The data in this table were constructed by using a variety of sources. The two 190510 numbers refer to rural
north India (*) and Bihar indigo planters (**).
agriculture 135
in common with most wages and interest
rates, little variability over time (Table 4.11).
The veritable flood of liquid money in the
agricultural villages after the completion of
every harvest season left the retail rates of
interest unaffected. Plentiful money does
not necessarily mean cheap money. 38 The
reason for a high interest elasticity of money
supply was threefold. First, much money was
used on short terms, as call money to bridge
a few days or months shortfalls during and
after harvests. Second, there was nothing
like a well-integrated money market. The
[rural and local] rates are quite independent
of the money rates in Calcutta, or Bombay.
Furthermore, interest rates continued to be
influenced by a mutually understood notion of
custom.
If we take a long view, real interest rates
fell somewhat, as one would expect when
the volume of credit expanded in real terms,
institutional diversity increased, and custom
was less respected than before. This was true
for the rural credit business as well as urban
and mortgage lending. Interest rates, however,
were less variable than prices, which were
volatile because of the effect of the monsoon.
In that case, sluggish nominal interest rates had
the potential to cause huge effects on outputs,
incomes, and savings.39
The most damaging of such episodes
occurred in 1931. During the Great
18578 1880 190510 19305
3650 50 1037
12 1824 1224
912
136 economic history of india
Depression, following a sharp drop in
prices, indebted peasants were plunged into
bankruptcy. Unsecured loans were destroyed
and consumption reduced. The only way out
for many indebted peasants was to sell their
jewellery in extraordinary quantities. The
export of gold, far more than anything the
overly conservative government did, helped
refloat the economy. This huge rural debt crisis
had a stabilizing effect upon formal banking,
for much of the proceeds of gold sales ended
up in banks.
EFFECTS OF MARKET EXPANSION
Peasant Earnings
As we have seen (Chapter 3), real GDP in
agriculture increased at the approximate rate
of 12 per cent per head in the late nineteenth
century. Further, real income in agriculture
increased somewhat faster than did real wage.
It is clear that the level of non-wage incomes
was increasing. What this income consisted
of is difficult to say. Given that the estimates
of national income account for commercial
profits separately from agricultural income,
the bulk of it probably consisted of peasant
income. In other words, peasant income did
rise, and the trend of a rise continued until
World War I. Increase in peasant earnings is
reflected in demand for land, and investment
in rural industry in some cash crop producing
zones. Even in Bengal, small peasants, when
engaged in major cash crops, gained in income
and wealth.40
The average income of the peasant,
however, was still quite small, which should
explain why peasants willingly migrated to
off-season urban work. Because of the high
seasonality of monsoon agriculture, there was
acute seasonal unemployment among the
peasantry. Agriculture rarely offered full-time
work for more than 22040 days in a year,
in the dry regions much less than that. Even
though average earnings in the factories of
the nineteenth century were only marginally
higher than what a peasant expected to earn in
agriculture, there was work available in mills,
mines, and plantations. Even the relatively well
off peasant families could afford to send their
adult males off to non-agricultural wage work,
recalling them to meet the peak season tasks.
Wages of Labourers
Nominal wages changed slowly until 1900,
presumably due to the prevalence of annual
contracts. By the turn of the century, however,
such long-term contracts were reportedly
in decline everywhere, and money wages
increasingly became more negotiable and
unstable as a result. In the long run of 180
years (Table 4.12), real wage of agricultural
labourers would seem to have risen, if only a
little.
In the peak period of agricultural export,
there were reports of a rise in real wage from
many regions. Labourers experienced an
improvement in the cash crop growing areas
of south India.41 Ian Stone has shown a similar
trend for Upper Doab.42 Signs of material
prosperity for the rural population in general
can be seen in Punjab too. In coastal Andhra,
there is evidence suggesting that real wages
in the 1920s were higher than those in the
1900s.43 In districts (especially in Madras)
where commercialization combined with large
net emigration, there was a rise in wages.44
For Bengal, data compiled by the K.L. Datta
committee on prices suggested a rise in real
wage between 1891 and 1911.45 On the other
hand, for the Deccan regions, real wages do not
seem to have changed very much in the early
twentieth century.46 Even where an increase
did take place, the extent was small, and
 agriculture 137

Table 4.12 Agricultural Wages, 17851968 (average annual in Rs)

Money Wage Real Wage at 1873 Prices

17848 14 27
1810 18 35
1830 24 32
1857 24 29
18705 35 35
18825 38 27
18991900 48 37
1920 73 29
1929 10010 47
1931 59 38
1936 53 28
1941 41 1518
1946 205 31
1951 241 48
1960 42
1968 42

Sources: The data in this table were constructed by using a variety of sources. For details, see Roy, Factor Markets; and
Tirthankar Roy, Globalisation, Factor Prices and Poverty in Colonial India, Australian Economic History Review, 47(1),
2007, pp. 7394.
Notes: Some of the numbers in this table were revised after these publications. A brief description is in order. Most wages
relate to Eastern and southern India until the 1870s; and to all-India averages thereafter. The former dataset is collated
from British Parliamentary Papers and a number of contemporary published surveys. The dataset for the 1870s1920s
was gathered from two official and all-Indian sources; that relating to the interwar period from a range of published or
unpublished provincial surveys; and the post-1950s from published research, especially Moni Mukherjee, Selected Papers
on National Income, Calcutta: Firma KLM, 1995; and A.V. Jose, Agricultural wages in India, Economic and Political Weekly
(EPW), 23(26), 1988, A46A58. Typically, the eighteenth and nineteenth century numbers are available in the sources
in the form of annual or monthly wages, whereas the later numbers are reported as daily wages. I convert all numbers into
annual, where given by any other unit of time, assuming a year of 220 working days. For the eighteenth and nineteenth
centuries, the deflator used is the price of rice in Bengal, available in the Global Price and Income History Group website
(http://gpih.ucdavis.edu/). For the later periods, weighted commodity prices index or the agricultural GDP deflator
were used. The war-time prices and wages are not entirely reliable because of fluctuations within the year.

sometimes short-lived. After all, agricultural
workers mainly moved between unskilled rural
occupations rather than out of them.
Most studies find a stagnant trend after
the mid-1920s, broken by two episodes of
shock. During the Great Depression, the initial
effect of a decline in commodity prices was
an increase in real wage. But money wages
were soon adjusted. Real wages at the end of
the adjustment (19356) were at the same
level as those at the onset of the Depression
(192930). World War II saw massive
inflation, depressing real wages to disastrously
low levels in 19413. This real wage shock
was the backdrop to the great Bengal famine
of 1943, and greater or lesser stress in many
other regions of India. Due to shifts in the
price indices, wage levels in the 1950s and
the 1960s are not entirely comparable with
levels in colonial India. It would seem that
the readjustment of prices saw a small rise in
real wage after the war. Whether the rise is
authentic or not, most studies seem to suggest
a gradual descent into the low average that
138 economic history of india
was not too different from wages around the
mid-1920s. Urban real wages, at the same
time, responded well and positively to import-
substituting industrialization, thus widening
the urbanrural gap in standards of living.
Over a period of 120 years, the number
of landless labourers in agriculture grew
from 15 million (1881, undivided India) to
107 million (2001, the Indian Union). For
the greater part of this time span, average
real wages changed little. It is the relative
immobility of the average wage, together with
the rise in the number of wage-dependent
households that has defined the persistence
of Indian poverty in modern times. The rise
in the number of wage-dependent households
can be explained by the fact that land area has
been expanding very slowly since the second
decade of the twentieth century. The old land
being already owned, additional population
must live either by dividing old plots, which
would push them toward tenancy, or by labour.
Thus, demographic transition in a land-scarce
region increased the ratio of labourers in the
agricultural population. But demography does
not explain the relative immobility of the
average wage. Consistent with the neo-classical
theory of wages, real wage in agriculture
followed trends in labour productivity quite
closely; this we can see whenever it is possible
to measure both. Average yield, in the long run
of perhaps two centuries (17601960), was
both small and nearly stagnant. The landed
gained from commercialization, on account
of asset holding and creditworthiness. But
the landless gained to a small extent, and
frequently lost out quickly from the windfall
effect of price depressions. In addition to
this economic factor, social status sometimes
added its weight to suppress wages.
In pre-colonial India, landless labourers
came from those castes whose primary duty
was to perform agricultural labour. Such
obligatory labour and serfdom declined in
the colonial times. From the early twentieth
century there was improvement in the social
status of the depressed castes. The element of
compulsion and force in their employment
became weaker. Various forms of social
oppression, such as enforced dress codes
and codes of conduct with respect to upper
castes, became weaker too.47 The length of the
working day came down quite substantially.
Migration within and outside agriculture
increased. The possibility of migrating to
the cities and to other British colonies made
occupational choice more diverse. The
decline of attached labour was partly induced
by the widespread exit of these castes from
agricultural labour. They entered plantations,
mines, urban services, public works, and
government utilities.
Alongside these positive changes, access to
the most valuable rural resource, namely land,
continued to be caste-biased. Despite some
evidence of the lower castes acquiring land, by
and large, landownership and superior tenancy
bypassed the labouring castes. The wealthier
sections tended to come from the middle or
upper castes, who had long been engaged in
cultivation, whereas the poor tended to come
from castes that had performed labour for
generations. Commercialization in that case
tended to strengthen the social and political
position of the former and weaken those of the
latter. In Peter Robbs expression, economics
reinforce[d] subservience.48
If such was the experience of the worker,
how did inequality among the peasantry
change?
Landownership and Class Structure
According to the neo-Marxist historiography
of colonial India, the title to land tended to
pass from the peasants to the capitalists in

the course of commercialization. Increase
in labour and tenancy contributed to
polarization. The intellectual context of the
polarization theme is set in late imperial
Russia, which offers two contending views
on how commercialization affected asset
inequality. V.I. Lenin argued that the middle
peasantry tended to disintegrate, as the risks
of commerce were too great for them to bear.
A.V. Chayanov believed that the peasants hold
on property would prove to be stable. The
argument was based on two counteracting
factors, the cheapness of family labour, and
a high rate of reproduction and population
growth in family farms. The peasant family
would survive, but do so at a low standard of
living. The Indian scholarship of the 1970s
tended to read Indian history mainly in
Leninist terms.
The general conclusion from tests of asset
inequality in rural India (nearly all the research
has focused on southern India) is that the
inequality in land holdings did not change in
the colonial period.49 As already mentioned, a
section of the pre-colonial elite with privileged
access to land suffered loss of economic and
political power. There was a decline of the old
nobility and hereditary elites, and a decline
of the Brahmins as landowners. In the wet
regions of Tamil Nadu, for example, members
of both lower and upper castes emigrated to
the plantations and towns. At the same time,
certain non-Brahmin castes increased their
land holding. In the Madras Deccan, there may
even have been a decline in inequality, due
to the possibility that many landless persons
acquired cultivable wastes in the interwar
period.50
In fact, far from a vanishing middle (Lenin),
or a poor but tenacious middle (Chayanov),
Indian evidence unambiguously suggests an
improvement and consolidation of the middle
peasantry. Commercialization did not weaken
agriculture 139
them, but strengthened them. Farmers from
peasant stock who grew cotton, sugarcane or
wheat on plots of land large enough to buy
them enough food and leave a profit grew
richer almost everywhere. They became
less dependent on the moneylenders, and
even began to lend themselves. Unlike some
members of the upper castes, they were willing
to farm themselves instead of being content
with rental income. Unlike peasants with small
holdings they had better capital resources and
social capital.
The rise of the middle peasantry was
rooted in the property rights reforms. Property
rights in the ryotwari areas were usually
granted to prominent members of the peasant
community, that is, individuals belonging to
families that could claim an original settler
status. In zamindari regions, the system of rent
collection was dependent on the collaboration
of the dominant peasant. These peasants
tended to be organized in collectives, and
negotiated terms with the zamindars as a
group. In the course of the nineteenth century,
there was entry into both the zamindar and
tenant strata. Yet, new tenant groups often
organized themselves in caste collectives, using
caste as a bargaining platform, and as a means
to combine powerfully against the zamindar.51
Local administrations usually supported the
peasant community in matters of dispute,
as the most successful Bengali entrepreneur
of the 1840s, Dwarkanath Tagore, realized
when he tried to erect a large-scale sugar
factory in a village on his own estate.52 The
dominant peasants owned or controlled key
resources like land, credit, water, implements,
and animals. Some of these resources were
controlled jointly on a communal basis. Real
work in the village, therefore, was impossible
without the consent and cooperation of the
dominant peasant community, in places, the
kinship community. Survival as a peasant in
140 economic history of india
this environment did not depend on individual
drive, but on getting along with the coalition of
dominant cultivators.
Such groups reaped the gains from
commercialization when market conditions
turned in their favour. The Jat peasantry
in Punjab and Upper Doab, the Vellalas in
Tamil Nadu, the jotedars or large tenants
with superior rights in western and northern
Bengal, the Kanbi Patidars of south Gujarat,
the rich Reddy farmers in MadrasDeccan,
the Maratha peasants and Saswad Malis in the
Mahrashtra sugarcane belt, and counterparts
of these groups from various other regions
illustrate the culmination of that process. The
process was not a smooth one. Famines and
the Great Depression caused reversals. But
these were temporary reversals and did not
upset the trend. These rich peasants usually
belonged to castes that theoretically ranked
below the elites. They were, however, upwardly
mobile, and at times organized to claim higher
ritual status. After Independence, this class
of relatively wealthy peasant communities
made successful attempts to control and shape
local and national politics (see also Chapter
12). In studies on the political economy of
independent India, they have been variously
called commercial peasantry (Donald
Attwood), rich farmers (Pranab Bardhan),
and bullock capitalists (Lloyd and Susan
Rudolph).53
At the lower end of the peasantry,
opportunities for improvement were limited.
Small peasants obviously suffered during
famines and slumps. The famines hit them
both by impoverishing them economically
and by depleting the population of working
males.54 Still, there is no evidence that the
small peasants were actually getting poorer
in the nineteenth century. They did share
in the profits from cash crops. Baker finds
evidence that in dry Madras, peasants formerly
engaged in subsistence agriculture on small
plots of land, realistically hoped to get rich by
groundnut cultivation.55 Charlesworth reports
frantic attempts by the small peasants to grab
even a small piece of the most fertile lands
available for sale.56 Yanagisawa suggests that
in the wet districts of Tamil Nadu, the nature
of investments in land and local infrastructure
enabled more intensive cultivation in small
plots.57
Having said that, the general pattern in
the twentieth century was an adverse one.
Upward mobility was becoming difficult.
Small peasants were constrained by the size of
holdings, continuous subdivision, insecurity
of tenancy, high risks of cultivation, limited
capital resources, and the collapse of the
world market. Those who were net buyers of
food and had limited opportunities of making
money from rural industry and trade, lived
under the threat of losing their land when
the harvest failed. There was little distance
between the proprietor, the tenant, and the
labourer, at the lower end. The first often
competed with the second for actual control
over the land, and the second could make ends
meet only by becoming a part-time labourer.58
Famines59
Shortly after the famine of 18968, some
Indian bureaucrats and nationalist writers,
such as K.L. Datta and R.C. Dutt, suggested
that the export of foodgrains from India had
reduced domestic food availability during
periods of bad harvest, and thus increased
the intensity of famines.60 The neo-Marxist
position that inequality and polarization
increased due to commercialization also
suggest that the number of people who lived
on the margins of subsistence increased, and
all such people were vulnerable to famines.
Sections of the bureaucracy, on the other hand,

held that foreign trade stabilized consumption,
for exports increased when domestic prices
were low and good harvests had created
a surplus over consumption needs, while
exports fell when prices were high.
There are at least two problems with the
view that the intensity of famines derived from
commercialization. First, in order to suggest
that there was a man-made, or colonial
element in the impact of the nineteenth
century famines, it is necessary to show
that these famines were worse in effect than
the ones that had happened before. Such a
hypothesis can never be put to test. Famines
arose from agricultures dependence on the
monsoon, and the consequent price risks. This
dependence was no lighter in pre-British times.
There is no way of knowing how frequent and
how severe famines in pre-British times were,
relative to those in the British times, or what
role food stocks played in mitigating the effects
of the pre-British famines. Without such
data, it is hard to accept that the nineteenth
century famines were exceptional in terms of
severity. On the other hand, famines due to
harvest failures became rare after 1900, which
suggests a positive correlation between food
security on the one hand, and infrastructure,
and market integration on the other. A second
problem with the view that foreign trade had
reduced food supplies is that the substitution
of food for non-food crops happened on
a rather limited scale in colonial India. At
Independence, more than 80 per cent of
the acreage cropped was given over to food
production. The percentage was surely higher
about 1800, but it is hard to suggest that the
extent of the shift was large enough to increase
the occurrence of famines.
As for the short-term effects of
commercialization, or the effect of food
exports on famines, Martin Ravallion studied
supply response to prices to conclude that
agriculture 141
foreign trade had a mitigating, rather than
an intensifying effect on food availability
at home.61 As for the long-term effect of
commercialization, we have seen that food
availability increased in the nineteenth century
(Tables 3.1 and 3.5). Real wages did not fall at
any time. So there was no significant change in
the purchasing power of the poor. For Bombay
Presidency as a whole, McAlpin has argued
that markets and infrastructure increased
food security and reduced the incidence and
impact of famines. Ian Derbyshire has made
the point about eastern and western UP.62 In
several regions, irrigation reduced the chances
of severe crop failure, and thus reduced the
impact of famines. These regions included
coastal Andhra, the upper Doab, and the
sugarcane zone along the Nira canals.63 These
effects followed not only from local increases
in production, but also from easier movement
of crops, which had been made possible by the
railways. A sign of such market integration was
that prices tended to be equalized between
regions.64
Far more than price risk, the low and
stagnant land yield exposed the population to
poverty and underdevelopment. To what did
this inertia owe?
EXPLAINING STAGNATION
Class and Power
An influential historiography suggests that the
answer lies in colonial policy and globalization.
New property rights were bestowed on groups
that did not cultivate land. Commodity
producers and factor suppliers were forced
by a new regime of taxation to participate in
long-distance trade, but market imperfections
left them poorer and forced them to borrow.65
In turn, usurious credit dispossessed peasants
of land and consolidated moneylender power.
142 economic history of india
The moneylenders as a class were reluctant to
invest in land improvement, so that agricultural
backwardness persisted.66 Commercialization
was forced, and led to peasant indebtedness.
In 1973, Amit Bhaduri gave this link between
indebtedness and technological backwardness
a theoretical grounding.67 Bhaduri explained
why the moneylender might not want to make
productive investment. The moneylender
was also the owner of land, which was tilled
by a landless peasant. The moneylender, thus,
earned income from two sources, interest on
consumption loan and crop share. If he or she
invested in land, crop share increased, but the
need for consumption loan and interest income
would fall. Fearing this loss, the moneylender
would not make productive investment. Bhaduri
later applied this theory to explain agricultural
backwardness in colonial Bengal and post-
colonial eastern India. The hypothesis was
that the Permanent Settlement in Bengal
had introduced layers of merchants and
moneylenders between the zamindars on
the one hand and the peasants with generally
inferior rights, on the other.68
The twin idea, that peasants were usually
forced to sell crops in long-distance markets on
unfavourable terms, and in turn, were forced
to borrow at unfavourable rates, should be
discarded. Even for a less prosperous region
like Bengal, B.B. Chaudhuri argues, citing the
examples of indigo, opium, sugarcane, and
jute, that (a) the notion of force is nave and
unrealistic, (b) debt was not universally a
burden nor of similar scale everywhere, and
(c) the practice of treating debts uniformly as
evil confuses ordinary working capital loans
with occasional consumption loans.69 The
indebted peasants who joined in the Deccan
riots of the 1870s had become indebted during
a time when cotton trade and prices had been
on the increase. Debts in this case reflected
creditworthiness rather than distress. After
1860, the real tax burden fell everywhere, and
the profit motive for market participation
strengthened. For the early twentieth century,
such an inference has been supported by
statistical work showing a positive correlation
between acreage cropped and relative prices of
crops.70 The response to price (profit) signals
shows that peasants could decide crop choice
and market decisions voluntarily.
Was there a distinct moneylender class in
rural India and did they control production?
I have already discussed (credit market) the
point that the credit business was increasingly
dominated by richer peasants, who, one
would expect, were able to predict profit
opportunities in land improvement quite well,
were such opportunities available. By and
large in the ryotwari areas, rich peasants who
owned land did not follow Bhaduris logic
and neglect cultivation in the hope of easy
money from credit. The rich peasants were
a product of the cash crops, and cash crops
saw higher, not lower, growth in productivity.
Credit, commerce, inequality, and growth
were positively correlated in rural India. It
has been shown (land market) that there is
no evidence that land transfers occurred on
an extensive scale in colonial India, whether
voluntarily or otherwise.
The fundamental flaw with the theory
of debt-led-misery is an analytical one.71 It
implicitly assumes that the expected profit
from land improvement was small relative to
rent or interest, but does not explain why that
must be so. Why would any capitalist not invest
in land improvement, even when expected
returns from such improvements were high?
The question cannot be sensibly answered
within the model. The problem is resolved if we
consider the existence of exogenous constraints
on land yield. In many regions of India,
environmental conditions acted as just such a
depressant.

Resource Endowment72
Zones of acute rural poverty consisted of
two broad types: relatively high-rainfall rice
growing regions with low landman ratio
(eastern India), and the low-rainfall regions in
peninsular India.
In the former situation, capital resources
were in short supply. Rice, being a high-
valued crop, could in principle be a route to
prosperity, but the rice regions tended to have
high population densities. In Bengal, Bihar,
or eastern UP income from rice was shared
between too many people dependent on land.
Land yield was above the Indian average,
but the number of households dependent
on wages and insecure tenancy was growing.
Fragmentation of peasant holdings made
the individual peasant an unreliable debtor,
and therefore, subject to control by the rich
trader-cum-creditor, who was also often the
holder of superior tenancy right. Further, parts
of the rice regions were so overexploited about
1901 that population growth had led to the
cultivation of inferior land. In Bengal, acreage
cropped per head was among the lowest in the
world in 1891, and fell by 80 per cent between
1891 and 1941. The rich peasant would find it
easier to exploit the increasing vulnerability of
those beneath him or her rather than investing
in land, all the more because degradation of
land made land improvement more expensive
and uncertain than before.
In the dry lands, expected earnings from
investment in land were low because of the
high cost of ensuring secure supply of water in
the dry seasons, and the high risk of harvest
failure. In the arid Deccan plateau, shortage of
water was an overwhelmingly more binding
constraint on agricultural growth than class
structure. Sinking wells was the only reliable
way to ensure two or three good crops in
a year. The low water table in the uplands,
agriculture 143
the thin top soil, the scarcity of perennial
rivers and the basaltic rock underneath,
made digging wells or constructing canals
prohibitively expensive. In the mid-nineteenth
century, constructing a well in the Madras
Deccan could cost two to three years gross
income of a peasant family, the attempt to
locate water frequently failed after making that
expenditure, and drawing water was labour
intensive. Few cultivators, an 1878 report on
Madras explained, are willing to encounter
the risk.73 The main grains in these areas were
a locally consumed arid crop, millets, which
yielded a small profit in the best of seasons.
Of the major rice areas, Konkan and Assam
had smaller density but both regions remained
stuck in a low-level equilibrium trap for want
of good transportation. The rice areas that
did well commercially were the Cauvery delta
and the GodavariKrishna delta. Both these
regions shared two points of distinctness from
eastern India: canal irrigation, which made
it possible to combine rice with dry-season
crops, and lower population densities.
CONCLUSION
Despite the diversities within it, a few
processes were present throughout the
subcontinent. To understand them better we
need to make three distinctions: (a) between
the periods, 18601920, and 192039; (b)
between regions that produced a large quantity
of the most lucrative cash crops and regions
that did not, and (c) between peasants with
secure property rights over large enough areas
of land and those without such physical and
institutional assets.
The average picture was one of
commercialization of agriculture during
18601920, with a slowdown thereafter. The
increased market demand was met by means
of expansion in area cropped, developments in
144 economic history of india

75 90

AFGHANISTAN

T I B E T

Lahore Simla
30 30

Delhi
IA
S

N E PA L
R
E

BHUTAN
P

Karachi

Calcutta
BU R M A
ges
Gan
f the
ths o
Mou

Bay
Bombay
of
Bengal

Hyderabad

15 15
A ra b i a n
Sea Indian Ocean

Madras
over 100 inches
Pondicherry
40 100 inchjes
(French)

Str
ait 20 40 inches
Palk
Cochin
Under 20 inches
Gulf
of
Mannar 0 200 400 Kilometers
CEYLON
0 200 400 Miles

75 90

Map 4.4 Rainfall

long-distance trade networks, and improved
infrastructure. There is sufficient evidence
that the commercialization contributed
to the prosperity of a middle peasantry in
the cash crop regions, and a mild increase
in agricultural wages. Agricultural growth
varied between regions. Regions with poor
endowments of water and infrastructure
were trapped in a low-level equilibrium. In
the rest of India, growth rates were generally
positive and nowhere significantly low. The
generally higher growth rates in productivity
of the major cash crops, the broad association
between regions producing cash crops and
regions experiencing growth in output,
and signs of increased standard of living in
the nineteenth century, all go to show that
commercialization was a voluntary rather
than forced process and that it contributed to
efficiency and incomes. It created some of the

institutional foundations, which enabled later
green revolutions to succeed.
What, then, caused the interwar stagnation?
Some regions in the eastern Gangetic plains
had run out of land from the nineteenth
century. After 1920, land scarcity became more
general. The earlier expansion had been driven
by an increased supply of land and water.
When the rate of increase in the supply of land
and water slowed, output growth decelerated
too. Further bursts of output expansion in the
better-endowed regions had to await the new
knowledge of the 1970s.
Property rights over land and in markets
made the common property resources, and
communities dependent on such resources,
vulnerable. And yet, the first legal safeguards
towards the protection of such resources
were framed in the colonial period. It is to
this contradictory picture with respect to the
commons that we now turn.
NOTES
1. Sumit Guha (ed.), Growth, Stagnation or Decline?
Agricultural Productivity in British India, New Delhi:
Oxford University Press, 1992.
2. George Blyn, Agricultural Trends in India, 1891
1947: Output, Availability, and Productivity, Philadelphia:
University of Pennsylvania Press, 1966.
3. Radhakamal Mukherjee, The Rural Economy of
India, London: Longmans Green, 1926.
4. A District Officer, Notes on North-western Provinces
of India, London: W.H. Allen, 1869, p. 56.
5. District Officer, Notes on North-western Provinces,
pp. 63, 76.
6. Carl E. Pray, The Impact of Agricultural Research
in British India, Journal of Economic History (JEH), 44(2),
1984, pp. 42940; and The Economics of Agricultural
Research in British Punjab and Pakistani Punjab, JEH,
40(1), 1980, pp. 1746. For a descriptive account of
early agricultural research, see M.S. Randhawa, A History
of Agriculture in India, New Delhi: Indian Council of
Agricultural Research, chapters 27, pp. 347.
7. Reliable price series of agricultural goods start
from 1861. Scattered and regional price data exist for
agriculture 145
periods before that. One such series covers 182370. It
shows no sustained trend in prices, but much fluctuation,
and possibly a depression during 184555. See K.
Mukerji, Price Movements in India between 1823 and
1871, Artha Vijnana, 5(4), December 1963.
8. John F. Richards, The Opium Industry in
British India, Indian Economic and Social History Review
(IESHR), 39(23), 2002, pp. 14980.
9. British Parliamentary Papers (BPP), House of
Commons, First report of the Royal Commission on Opium;
with Minutes of Evidence and Appendices, 1894 (Paper No.
C.7313), p. 134.
10. Amalendu Guha, Raw Cotton of Western India:
Output, Transport and Marketing, 17501850, IESHR,
9(1), 1972, pp. 141.
11. A literal definition of millets is cereal plants
with small seeds. In the Indian context, millets stand for
a range of relatively drought-resistant dryland foodgrains
that were consumed mainly locally.
12. S. Arasaratnam, The Rice Trade in Eastern
India 16501740, Modern Asian Studies (MAS), 22(3),
1988, pp. 53149; A.J.H. Latham and Larry Neal, The
International Market in Rice and Wheat, 18681914,
Economic History Review (EHR), 36(2), 1983, pp.
26080.
13. On a global history of the roller mill, see John
Daniels and Christian Daniels, The Origin of the
Sugarcane Roller Mill, Technology and Culture, 29(3),
1988, pp. 493535.
14. On the role of seeds (and canals) on Punjabs
agricultural growth, see Carl E. Pray, Accuracy of Official
Agricultural Statistics and the Sources of Growth in the
Punjab, 190747, IESHR, 21(3), 1984, pp. 31333.
15. Neil Charlesworth, Trends in the Agricultural
Performance of an Indian Province: The Bombay
Presidency 19001920, in K.N. Chaudhuri and C.J.
Dewey (eds), Economy and Society, Bombay: Oxford
University Press, 1979, pp. 11340; S.C. Mishra,
Agricultural Trends in Bombay Presidency 19001920,
MAS, 19(4), 1985, pp. 73359; and M.B. McAlpin,
Railroads, Prices and Peasant Rationality, JEH, 34(3),
1974, pp. 66284.
16. Bruce L. Robert, Economic Change and
Agrarian Organization in Dry South India 18901940:
A Reinterpretation, MAS, 17(1), 1983, pp. 5978. The
effects of commercialization in the MadrasDeccan
are controversial. In one view, ecology and the need
to make large investments in land for cultivating cash
crops intensified inequality and led to the dominance of
magnates. In another view, new opportunities enabled
upward mobility of the small peasants. See David
146 economic history of india
Washbrook, The Commercialization of Agriculture
in Colonial India: Production, Subsistence and
Reproduction in the Dry South, c. 18701930, MAS,
28(1), 1994, pp. 12964; G.N. Rao and D. Rajasekhar,
Commodity Production and the Changing Agrarian
Scenario in Andhra: A Study in Interregional Variations,
c.1910c.1947, in Sabyasachi Bhattacharya, Sumit Guha,
Raman Mahadevan, Sakti Padhi, D. Rajasekhar, and G.N.
Rao (eds), The South Indian Economy: Agrarian Change,
Industrial Structure, and State Policy, C19141947,
New Delhi: Oxford University Press, pp. 150; and
D. Rajasekhar, Commercialization of Agriculture and
Changes in Distribution of Land Ownership in Kurnool
District of Andhra (c. 190050), in Bhattacharya, Guha,
Mahadevan, Padhi, Rajasekhar, and Rao (eds), South
Indian Economy, pp. 78119.
17. For a discussion, see Sumit Guha, Agrarian
Bengal, 18501947: Issues and Problems, Studies in
History, 11(1), 1995, pp. 11942.
18. Wet lands generally mean lands which have
assured manmade irrigation, whereas dry lands mean
rain-fed cultivation.
19. An early twentieth century description of
Narmada Valley by an officer is worth citation: There is
no surplus population looking for labour .. as ... new
forms of employment are being developed. Agricultural
labourers are paid in kind and the value of their wages
has increased with the rise in prices. Ginning factories
and hemp presses are being started, and the development
of trade gives employment to large numbers of carters.
The GondiaChanda and Chhindwara railways now
under construction are also giving employment. Large
irrigation works are being constructed in the small rice
tract R.A.B. Chapman, Deputy Commissioner,
Seoni, India, Proceedings of the Assam Labour Enquiry
Committee in the Recruiting and Labour Districts, Calcutta:
Government Press, 1906, pp. 601
20. B.B. Chaudhuri, Agrarian Relations: Eastern
India, in Dharma Kumar (ed.), The Cambridge Economic
History of India, Volume 2 (CEHI 2), Cambridge:
Cambridge University Press, 1983, p. 93.
21. On a measure of asset inequality, see Dharma
Kumar, Landownership and Inequality in the Madras
Presidency: 185354 to 194647, IESHR, 12(3), 1975,
pp. 22961.
22. On the Marxist literature on peasant
differentiation, a selection of relevant essays can be found
in Utsa Patnaik, Agrarian Relations and Accumulation: The
Mode of Production Debate in India, Bombay: Oxford
University Press, 1990.
23. On the extent of land transactions, see Nariaki
Nakazato, Regional patterns of land transfer in late
colonial Bengal, in Peter Robb, Kaoru Sugihara, and
Haruka Yanagisawa (eds), Local Agrarian Societies in
Colonial India: Japanese Perspectives, Richmond: Curzon
Press, 1996, pp. 25079; N. Bhattacharya, Lenders and
Debtors: Punjab Countryside, 18801940, in Sugata
Bose (ed.), Credit, Markets and the Agrarian Economy
of Colonial India, New Delhi: Oxford University Press,
1994, pp. 197247; D. Rajasekhar, Commercialization of
Agriculture, in Bhattacharya, Guha, Mahadevan, Padhi,
Rajasekhar, and Rao (eds), South Indian Economy.
24. On land prices, see BPP, Mr. Robertsons report
of tour in Coimbatore, 1878 (Paper No. 143), p. 11;
D. Rajasekhar, Commercialization of Agriculture, in
Bhattacharya, Guha, Mahadevan, Padhi, Rajasekhar, and
Rao (eds), South Indian Economy; K.M. Mukerji, The
Growth of the Land Market in India: A Long Period
Analysis, Arthaniti, 15, 12, 1972.
25. Bengal, Report of the Land Revenue Commission
Bengal, Volume I, Calcutta: Government Press, 1940, p.
34, for example.
26. Dharma Kumar, Land and Caste in South India:
Agricultural Labour in Madras Presidency in the Nineteenth
Century, Cambridge: Cambridge University Press, 1965.
27. Alice Thorner, The Secular Trend in the Indian
Economy, 18811951, Economic Weekly, 14, 1962,
pp. 115665; Daniel Thorner, Deindustrialization
in India, 18811931, in D. Thorner and A. Thorner
(eds), Land and Labour in India, New York: Asia, 1962;
J. Krishnamurty, The Growth of Agricultural Labour in
India, IESHR, 9(4), 1972, pp. 32732.
28. Dharm Narain, The Impact of Price Movements
on Selected Crops in India 19001939, Cambridge:
Cambridge University Press, 1965; Omkar Goswami
and Aseem Shrivastava, Commercialisation of Indian
Agriculture: What Do Supply Response Functions Say?,
IESHR, 28(3), 1991, pp. 22960.
29. Tirthankar Roy, Rethinking Economic Change in
India: Labour and Livelihood, London: Routledge, 2005.
30. Kumar, Land and Caste in South India.
31. W.J. Collins, Labor Mobility, Market Integration
and Wage Convergence in Late 19th Century India,
Explorations in Economic History, 36(3), 1999, pp.
24677.
32. Ravinder Kumar, Western India in the Nineteenth
Century, London: Routledge and Kegan Paul, 1968;
Neil Charlesworth, Myth of the Deccan Riots of 1875,
MAS, 6(4), 1972, pp. 40121; I.J. Catanach, Rural
Credit in Western India 18751930, Berkeley and Los

Angeles: University of California Press, 1970, chapter
I; Eric Stokes, The Peasant and the Raj: Studies in
Agrarian Society and Peasant Rebellion in Colonial India,
Cambridge: Cambridge University Press, 1978, cited by
Bose (ed.), Credit, Markets and the Agrarian Economy, p.
11.
33. M.M. Islam, The Punjab Land Alienation Act
and the Professional Moneylenders, MAS, 29(2), 1995,
pp. 27191.
34. For example, Shahid Amin, Small Peasant
Commodity Production and Rural Indebtedness: The
Culture of Sugarcane in Eastern U.P., c. 11801920, in
Bose (ed.), Credit, Markets, and the Agrarian Economy, pp.
80135.
35. Malcolm Darling, Prosperity and Debt,
reprinted in Bose (ed.), Credit, Markets, and the Agrarian
Economy, pp. 2956.
36. Eric Stoke, Peasants, Moneylenders and Colonial
Rule: An Excursion into Central India, in Bose (ed.),
Credit, Markets, and the Agrarian Economy, pp. 5779.
37. Bhattacharya, Lenders and Debtors; Sumit
Guha, Weak States and Strong Markets in South Asian
Development, c. 17001970, IESHR, 36(3), 1999, pp.
33553.
38. H.R. Perrott, Voices from the Indian Up-
country: Banking and Money-lending, The Economic
Journal, 19(4), 1909, pp. 45063.
39. Tirthankar Roy, Price Movements in Early
Twentieth Century India, EHR, 48(1), 1995, pp. 11833.
40. Omkar Goswami, Industry, Trade, and Peasant
Society. The Jute Economy of Eastern India 19001947,
New Delhi: Oxford University Press, 1991, pp. 812.
41. Peter Mayer, Trends of Real Income in
Tiruchirapalli District and the Upper Kaveri Delta,
18191980, IESHR, 43(3), 2006, pp. 34964. Kurnool District of Andhra, 18701900, IESHR, 28,
42. Ian Stone, Canal Irrigation in British India:
Perspectives on technological change in a peasant economy,
Cambridge: Cambridge University Press, 1984.
43. K. Atchi Reddy, Wages Data from the Private
Agricultural Accounts, Nellore District, 18931974,
IESHR, 16(3), 1979, pp. 30121.
44. Dharma Kumar, Agrarian Relations: South
India, in Tapan Raychaudhuri and Irfan Habib (eds), The
Cambridge Economic History of India, Volume 1 (CEHI 1),
Cambridge University Press, 1983, pp. 2389.
45. B.B. Chaudhuri, Agrarian Relations, in CEHI 2,
p. 172.
46. Guha, Agrarian Economy, Table 5.9; S.
Krishnamurty, Real Wages of Agricultural Labourers in
the BombayDeccan 18741922, IESHR, 24(1), 1987,
agriculture 147
pp. 8198; Charlesworth, Trends in the Agricultural
Performance, in Chaudhuri and Dewey (eds), Economy
and Society. On MadrasDeccan, B.L. Robert, Structural
Change in Indian Agriculture.
47. See Haruka Yanagisawa, A Century of Change:
Caste and Irrigated Lands in Tamil Nadu, 1860s1970s,
Delhi: Manohar Publishers, 1996.
48. Peter Robb, Peasants Choices? Indian
Agriculture and the Limits of Commercialization in
Nineteenth Century Bihar, EHR, 45(1), 1992, pp.
97119.
49. Dharma Kumar, Landownership and
Inequality; H. Fukazawa, Agrarian Relations: Western
India, in CEHI 2, pp. 2002. See, for a discussion on
other regional evidence, Yanagisawa, Introduction,
Century of Change.
50. Yanagisawa, Century of Change; On Madras
Deccan, see D. Rajasekhar, Land Transfers and Family
Partitioning, Trivandrum: Oxford-IBH and Centre for
Development Studies, 1988.
51. Peter Robb, Hierarchy and Resources: Peasant
Stratification in Late Nineteenth Century Bihar, MAS,
13(1), 1979, pp. 97126.
52. Evidence of A. Forbes (former Secretary to
Tagore), British Parliamentary Papers 1859 Session
1 (198), Select committee to inquire into progress and
prospects for promotion of European colonization and
settlement in India report, proceedings, minutes of evidence,
index, p. 148.
53. For a discussion, see D.W. Attwood, Raising
Cane: The Political Economy of Sugar in Western India,
New Delhi: Oxford University Press, 1992, chapter 1.
54. See, for example, D. Rajasekhar, Famines and
Peasant Mobility: Changing Agrarian Structure in
1991, pp. 12150.
55. Christopher J. Baker, An Indian Rural Economy,
18801955: The Tamilnad Countryside, New York:
Oxford University Press, 1984, chapter 3.
56. Charlesworth, Peasants and Imperial Rule,
p. 299.
57. Haruka Yanagisawa, Elements of Upward
Mobility for Agricultural Labourers in Tamil Districts,
18651925 in Peter Robb, Kaoru Sugihara, and Haruka
Yanagisawa (eds), Local Agrarian Societies in Colonial India,
Richmond: Curzon Press, 1996.
58. David Washbrook describes distress-induced
movements between labour and small peasanthood in
Commercialization of Agriculture.
59. See Chapter 11 for a fuller discussion on famines.
148 economic history of india
60. The approach was popularized in later works
such as B.M. Bhatia, Famines in India, Bombay: Asia,
1951, pp. 1421. Major regional studies also hinted
at similar effects, for example, Elizabeth Whitcombe,
Agrarian Conditions in Northern India, Volume 1: The
United Provinces under British Rule, Berkeley: University
of California Press, p. 75.
61. Martin Ravallion, Trade and Stabilization:
Another Look at British Indias Controversial Foodgrain
Exports, Explorations in Economic History, 24 (4), 1987,
pp. 35470.
62. Charlesworth, Peasants and Imperial Rule;
Michelle B. McAlpin, Subject to Famine: Food Crisis and
Economic Change in Western India, 18601920, Princeton:
Princeton University Press, chapter 7; I.D. Derbyshire,
Economic Change and the Railways in North India,
18601914, Population Studies, 21(3), pp. 52145.
63. A. Satyanarayana, Expansion of Commodity
Production and Agrarian Market, in D. Ludden (ed.),
Agricultural Production and Indian History, New Delhi:
Oxford University Press, 1994, pp. 182239; Ian Stone,
Canal Irrigation and Agrarian Change: The Experience
of the Ganges Canal Tract, Muzaffarnagar District (U.P.),
18401900, in Ludden (ed.), Agricultural Production, pp.
11444; Attwood, Raising Cane, p. 41.
64. See, for example, Satyanarayana, Expansion of
Commodity Production, in Ludden (ed.) Agricultural
Production, p. 208.
65. On the mainstream view, see Irfan Habib,
Colonialization of the Indian Economy, 17571900,
Social Scientist, 3(1), 1975, pp. 2053; Sumit Sarkar,
Modern India: 18851947, Delhi: Macmillan, 1983,
pp. 2442; A.K. Bagchi, Markets, Market Failures,
and Transformation of Authority, Property and
Bondage in Colonial India, in Burton Stein and Sanjay
Subrahmanyam (eds), Institutions and Economic Change
in South Asia, New Delhi: Oxford University Press, 1996,
pp. 4870.
66. S.J. Patel, Agricultural Labourers in Modern India
and Pakistan, Bombay: Current Book House, 1952, pp.
4863; Utsa Patnaik, On the Evolution of the Class of
Agricultural Labourers in India, Social Scientist, 11(7),
1983, pp. 324.
67. Amit Bhaduri, A Study in Agricultural
Backwardness under semi-Feudalism, Economic Journal,
83, 1973, pp. 12037.
68. Bhaduri, The Evolution of Land Relations in
Eastern India under British Rule, IESHR, 13(1), 1976,
pp. 4553.
69. B.B. Chaudhuri, The Process of Agricultural
Commercialisation in Eastern India During British
Rule: A Reconsideration of the Notions of Forced
Commercialisation and Dependent Peasantry, in
Peter Robb (ed.), Meanings of Agriculture, New Delhi:
Oxford University Press, 1996.
70. D. Narain, The Impact of Price Movements on
Areas Under Selected Crops in India, 190039, Cambridge:
Cambridge University Press, 1965; Goswami, Industry,
Trade, and Peasant Society, chapter 3; Goswami and
Shrivastava, Commercialisation of Indian Agriculture;
Satyanarayana, Expansion of Commodity Production, in
Ludden (ed.) Agricultural Production, p. 197.
71. Pointed out by Ashok Rudra, see Chiranjib Sen,
Commercialization, Class Relations and Agricultural
Performance in Uttar Pradesh: A Note on Bhaduris
Hypothesis, in K.N. Raj, Neeladri Bhattacharya,
Sumit Guha, and Sakti Padh.(eds), Essays on the
Commercialization of Indian Agriculture, New Delhi:
Oxford University Press, 1983; and Tirthankar Roy,
Modelling History, EPW, 34(48), 1999, pp. 33601.
72. For a fuller version of the argument that follows
in this section, see Tirthankar Roy, Roots of Agrarian
Crisis in Interwar India: Retrieving a Narrative, EPW,
41(52), 2006, pp. 5389400, and Roy, A Delayed
Revolution: Environment and Agrarian Change in
India, Oxford Review of Economic Policy, 23(3), 2007, pp.
23950.
73. BPP, Mr. Robertsons report, p. 12.
5
The Commons
T he economy of the countryside was
not exclusively the economy of settled
agriculture. Peasants lived alongside hunters-
gatherers, herders, shifting cultivators,
and fisherfolk. All these peoples lived on
resources available in common, such as forests,
grasslands, or water. Peasants themselves
depended on these common resources for
fuel, building material, raw material for rural
industry, medicines, grazing grounds, and
subsistence during famines. In the last twenty
years or so, historians have paid particular
attention to the relationship between the
commons, the society, and the colonial state.
Two basic premises underlie this scholarship,
despite many differences in detail. First, the
relationship was mediated in the colonial
period by the changing economic value of
common property resources. And second,
colonialism was an ecological watershed in
Indian history. What had changed? What was
this a change from? The present chapter will
deal with these themes based on a selective
look at what is now quite a large field.
TYPES OF COMMON LAND
About 1850, most lands which lay outside the
arable cultivated zone in or near villages and
which were not used for habitation, fell into
three broad classes: forests and woods, areas
that could be described as grasslands or scrubs,
and village grazing lands or village commons.
Access to and use of these lands were governed
by a variety of rules and conventions. Forests
and commons located in estates where a ruler
could effectively claim ownership or taxation
rights were private resources. Forests inside
zamindari estates were of this kind. Otherwise,
forests and commons could be either open
access or under collective rights of varying
degrees of formality.
In the pre-British period, the right to the
use of uncultivated common land within easy
access to the village tended to be decided
jointly by dominant peasant families and clans.
Where the areas were large and the population
that used the commons was not settled near
these lands, the rights tended to be periodically
150 economic history of india
negotiable with the local rulers. An example
was the nomadic pastoralist communities that
traversed the scrubs and savanna in north and
south India. Locally, collective bodies such as
village communities sometimes negotiated
these rights.
The agency of the village community
has been the subject of some controversy.
The forests of the western Himalayas were
earlier used by a large migratory pastoralist
population, as well as by the peasants who
lived on small plots of hillside lands between
the forests. As the elevation increased,
agriculture alone became insufficient to sustain
a living, and had to be combined with animal
husbandry, mining, trade, and extraction
of diverse resources from the forests. A
village community, it has been suggested in a
pioneering work, decided access to and usage
of these forests. It is not clear though how far
these communities were pre-existing or how
far these were recreated by the colonial states
attempt to define customary property rights in
wastes.1 Outside these village commons, there
existed scrubs and grasslands. Here, rights to
use, if these existed at all, were more loosely
defined. In the nineteenth century, access to
the savanna, degraded forests that had little
commercial value, and desert fringes, were still
vaguely defined. If there is a story about how
these marginal lands came to be controlled,
that story is yet to be fully written down.
What rights to the commons had existed
before, became a question for debate when the
first Forests Act was framed in 1865. Colonial
authorities decided that the pre-colonial
system was for the ruler of the land to exercise
absolute ownership right to these commons,
and on those grounds, claimed absolute
proprietary rights over forests. Thus, in effect,
proprietary rights were established even in
forests that had been subject to customary
usage with or without explicit rights. The
people most affected by this move were
the hunters-gatherers and the population
subsisting mainly on forest resources.
FORESTS AND FOREST-DEPENDENT
PEOPLE
The Making of Forest Policy
European expansion in the New World
destroyed native ecosystems and population
through new diseases, plants and animals,
enabling the creation of neo-Europes in
these regions. In the Old World of Asia, the
impact was of a different order from that of
the Columbian exchange. The existence of
developed agricultural civilizations, dense
settlements and, therefore, greater disease
resistance enabled these populations to
withstand the disease organisms that came
with the Europeans. Indeed, tropical Asia
had more to offer by way of disease organism.
The demographic balance of payments was
against the Europeans in this case. However,
new market demand for natural resources, and
new laws of usage could still unleash major
transformations as a result of the encounter.
In the early nineteenth century, forests
were often felled under British supervision for
reasons of defence. This was, for example, the
case in the eastern part of the GangesJumna
Doab, or submontane north Bihar.2 The
onslaught on forests became heavier in the
mid-nineteenth century with the huge new
demand for railway sleepers, fuel for railway
locomotives, and timber for shipbuilding.
Private contractors took forest patches on
lease and cut down trees in large numbers. In
several parts of India, the destruction upset
the pattern of vegetation and wild life. Apart
from the profit motive, a prevailing official
perception that forests were an obstruction to
agriculture, helped this destruction continue

until the last decade of the nineteenth
century.
However, the lobby for conservation was
growing too. In 1864, the establishment
of the Forest Department, and the Indian
Forest Act the next year, were the first steps
towards formal legal restraints on access to
forest resources. A more comprehensive and
powerful act was passed in 1878. Research on
the history of colonial forestry has investigated
the roots of state control and ownership of
Indian forests through these centralizing
acts. Commercial over-exploitation was
clearly one motivation. A better assessment
of the commercial value of forests in which
non-timber resources such as medicinal
plants figured in an increasingly important
way, also strengthened conservationism. It
has been argued, however, that the economic
motive was only one of several independent
roots of forest policy. Another imperative
was state formation, or a desire to govern,
which expressed itself by taking control of a
collective resource. A third imperative was
growth of knowledge, especially the growth
of scientific forestry in Continental Europe,
and the evolution of forest management as
an academic profession. Significantly, the
early forest departments in British India
were managed by invited experts from the
continent.3 In turn, the birth of scientific
forestry itself has been traced to a set of ideas
called desiccationist, held together by the
belief that there was a link between tree cover
and soil erosion and drought.4
The years between the first two Forest
Acts saw a debate on the nature of rights
and privileges, ancient laws and adaptations
needed therein, which could be the basis
for a practical forest policy. The 1878 act
classified forests into three types: reserved
forests that were to be under state ownership
and control, in exclusion of all or nearly all
the commons 151
private rights; protected forests again in
state control but not in exclusion of existing
rights of usage; and village forests under the
management of the village. Understandably,
the most commercially valuable forests were
reserved. However, protected forests were
also progressively reclassified as reserves over
time, which shows up in land-use statistics (see
below) as a rise in the extent of forest area.
Legislation had three significant effects.
First, the net income of the forest department
increased. While conservation did reduce
the scale of exploitation, new uses for
forest resources, such as an urban market in
furniture, were created, and the state now
collected a rent from such uses. Second, the
scale of destruction was indeed reduced, even
though World War I saw a sudden revival of
timber extraction. And third, customary rights
to access were curbed. This move affected the
hunters-gatherers as well as groups who lived
on forest resources. In at least one sphere,
the new laws showed up to be iniquitous:
while the small-scale hunting of the forest-
dependent peoples was outlawed or curbed,
state officers embarked on large-scale hunting
of big and small game.
How did the livelihoods of people who
lived in or near forests change?
The Forest-dependent People
The economic history of forest dwellers and
indigenous tribes revolves around two big
changes, erosion of land rights and migration.
One reason why the tribes were part forest
dependent was because the lands that they
tilled did not provide sufficient sustenance.
Nor did most such lands provide a taxable
surplus. The forest-dependent communities
tended to be taxed only nominally, often taxed
by the plough rather than land area, and the
burden of taxation fell upon communities
152 economic history of india
rather than individuals. This situation made
the property rights of the forest-dependent
peoples different in nature from those that
existed in the plains and fertile river valleys. It
is necessary to be mindful of the distinction,
for it plays a role in the way the livelihoods of
forest-dependent people changed later.
Progressively in the nineteenth century, the
livelihoods of the forest-dependent people
were affected by three forces. First, the first
Indian Forest Act formally closed access to the
forests. Long before that, the government had
discouraged slash-and-burn agriculture, which
some indigenous communities had depended
on. These people were forced to emerge from
the forests and move to the croplands of the
plains where property rights had already
been allocated among long-settled farming
communities. Second, the communities that
had practised more settled agriculture near or
inside the forested zone, tended to lose control
over property. Outsiders and adventurers from
the plains, who secured property in such land
by paying money to the zamindar, reduced
the indigenous farmers to a tenant status. The
third factor acted upon the indigenous people
in a rather more positive way. The forest-
dependent peoples had always been relatively
mobile and available for wage labour in the
plains. The poor soil and water scarcity of the
uplands made eking out a living there difficult
even in the best of conditions, and made them
willing to move. From the nineteenth century,
the opportunity of moving away en masse grew
as demand for indentured workers increased
manifold (see Chapter 10). The availability of
this outlet saw vast numbers leave the uplands
for work elsewhere.
The most researched example of the
transformation is Chota Nagpur.5 The Chota
Nagpur plateau was surrounded on all sides
by forests before British rule extended
into the region. It had virtually no roads
suitable for wheeled traffic, and therefore
little long-distance trade. The major rivers
in the region were not navigable in the dry
seasons, dangerous in monsoon, and had
no known bridges before the railways of
the late nineteenth century. Although well-
endowed with minerals and iron ore, the
local iron industry was practised on a small
scale mainly for a local clientele. The main
population groups living in this zonethe
Munda, Oraon, Kherias, Hos, Birhors, and
Bhumijscultivated land in the river valleys
but usually without irrigation. The laterite soil
and undulating topography made even the best
crop a paltry one. Land simply did not produce
much more than a precarious subsistence in
these areas.
When Eastern India became technically a
Mughal province, there was not much interest
in imposing the authority of the provincial
capital in the uplands. The local chieftains did
try to install a form of jagirdari, and in some
areas these attempts saw limited urbanization.
By and large, however, the attempt was a
limited one and neither the chieftains nor
the imperial administration tried too hard to
extract taxes from the uplands. A quit rent
from the villages was all that was collected.
As a result of the isolation of the state from
the peasantry, an indigenous property right
evolved in these regions. Labour, not land, was
the more critical resource for the peasant and
the state. Property right rested on groups of
people and was contingent on work. Village
headmen represented an authority over
people, and were free to allocate land amongst
the residents of the village.
This situation continued for sometime after
the Company assumed Dewanny. However,
the Permanent Settlement initiated a process
of change by converting the old estates into
zamindari property and by imposing greater
demands upon the zamindars. An asymmetry

in rights was now inserted in the uplands,
the state recognized the private proprietary
right of the chieftains, who paid the taxes,
but had no means of defending or defining
the village-based right to cultivation of the
indigenous people. Thus, when the chieftains
farmed out taxation rights to a large number of
intermediaries, and the latter tried to squeeze
new taxes upon the indigenous people, the
police and the courts could only defend the
former and not the latter. The Kol insurrection
of 1831 was a violent reaction against the
collapse of the upland order. Although the
property rights regime recognized customary
rights thereafter, already the indigenous
people had begun leaving the uplands in large
numbers. From the 1930s, a steady flow of
emigrants began towards tea plantations in the
north-east, Mauritius and the Caribbean (on
loss of land rights, see Box 5.1).
A systematic economic history of
indigenous peoples elsewhere remains uneven.
Overall, the tone of the historian is pessimistic
about the economic transformation of the
forest-dependent peoples, and seemingly
confirming that pessimism, some of the acute
forms of poverty and malnutrition today occur
in regions populated by communities that had
been, and still remain, partly forest dependent.
Whereas it is possible that the poverty was
partly a colonial creation, it is true that the
uplands remain deprived of resources, both
natural resources such as water, and man-made
ones such as roads, railways, schools, and
hospitals. Nevertheless, the limited research
available on the commons hints that they were
subjected to a peculiar form of squeeze in the
colonial times. On the one hand, property
rights and limited resources drove them to
leave the forests. And on the other, limited
political resources made them unable to
compete with the plains people. The double
squeeze also made these groups especially
the commons 153
prone to indebtedness. Unlike in the plains,
the tribal had no qualms about drinking liquor,
which they once brewed out of forest produce.
When they started buying their drinks from
the market, another road to ruin was opened
up.
D.E.U. Bakers work on central India
shows how, in the backdrop of these changes,
conditions of scarcity could affect these people
in particular ways.6 When famine conditions
struck central India, the tribal groups suffered
because of the double squeeze. Famines also
showed a harsh aspect of the squeeze. From
a long time past, when communities found
themselves short of food, they went in search
of food in the forests and common lands.
These communities had knowledge about wild
grass, fruits, leaves and barks that were edible,
and they survived on these things for quite
sometime. It was often by observing these
wanderings that government officers in the
eighteenth century sensed a famine had begun.
The tribal groups knew more about such
matters than the peasants, but their knowledge
was useless given that the government had
closed access to the forests. Since the tribal
groups lived partly in forests, partly outside,
partly in the hills and partly in the plains,
conventional relief camps could not reach out
to them effectively.
VILLAGE COMMONS AND PASTURES
In the nineteenth century, the commons in
easy access of the village began to disappear, or
access to them became increasingly difficult.
Pastures likewise began to become increasingly
inaccessible, affecting the pastoralist
communities.
These processes were connected with
sedentarization and peasantization of those
communities who primarily depended on the
commons. They settled as farmers, which is
154 economic history of india

Box 5.1 Law, Sovereignty, and the Land Rights of Indigenous Peoples
A major preoccupation in the historiography of the uplands is loss of access to property in land on the
part of the indigenous people. The literature puts it down to the working of a predatory capitalism of
a colonial type. This is hardly a satisfactory approach. Loss of land rights by indigenous people was a
worldwide phenomenon, and owed to a different source in the New World. Comparisons between India
and the New World, therefore, are instructive.
The New World experience suggests that the form of land rights depended upon institutional and
political traditions carried along by the European settlers. The settlers followed the Roman terra nullius
principle, which sanctioned occupation of land that did not seem to belong to any sovereign, and its
conversion into private property. Much of these lands had been communal land among the indigenous
population. Furthermore, the state exercised law-making powers in the way the contemporary European
states had done, but such powers often denied the non-European population citizenry and equality of
property rights. Reversals and adjustments were made on both these counts, but late and partially.
Against this pattern, the uplands in India present some similarity and some differences. The obvious
difference between India and the New World was that the forested uplands in India were not a settler
society, and therefore, not subject to the sovereignty of a state composed of settlers. The new intruders
(merchants, peasants, and officers) who penetrated the uplands in the nineteenth century and tried to
oust the indigenous people from secure land rights could not claim to possess a new form of citizenship
or sovereignty.
And yet, there was something akin to terra nullius going on in the uplands. The real problem was not
conquest of common lands, but that of fitting tribal form of joint property within the framework of
private property in land that ruled the common law of the plains. In the plains, the peasantry had a long-
established relationship with the regional rulers. The cultivator who paid land tax was morally entitled to
security of property, whether that security was supplied by the local zamindar as in the Mughal times or
by a court of law as in the Companys times. Cadastral surveys and village officers recorded the claims of
individual peasants and families. In the uplands, by contrast, lands were of poor quality and inaccessible
to the fiscal machine. Taxes were often paid lump sum according to the number of ploughs. Headmen
allocated land. The pre-British empires did not bother to collect much money from the uplands, for the
lands bore little of value anyway. Consequent upon all this, individual rights were unspecified in law with
respect to uplands property.
When land laws were finally specified, the plains form of rights received a privileged status over joint
rights of the uplands kind.

Readings: On land rights in settler societies, Jacob Metzer and Stanly Engerman (eds), Land Rights,
Ethno-nationality, and Sovereignty in History, London and New York: Routledge, 2004; and the section on
An economic history of the Chota Nagpur plateau in this chapter.

what the government also wanted. There were
several factors leading to this change. First, the
British redefined their political relationship
with pastoralist communities and often
imposed new taxes on them. In regions located
near areas of conflict such as Punjab, some
pastoralist communities who were not believed
to be sufficiently loyal, fell a victim of these
conflicts. Second, various forms of joint rights
on the use of the commons were either not
understood or ignored. These were replaced
by private property, encouraging the dominant
cultivators to try to enclose and subdivide
common lands wherever they could. In Bengal,

the zamindars imposed restrictions on the use
of forests within their domains, which was
one of the grievances that led to the Santal
Rebellion in western Bengal in 1855. Third,
large canal irrigation systems crisscrossed
and broke up grazing grounds and converted
some of them into cultivable land. Fourth,
population growth led to encroachment on
forests and grazing grounds.
Restrained access to the forests and
enclosures for private or collective use had a
number of economic effects, some of which
are not well researched. Regional studies hint
at a disappearance of occupations, problem
of inadequate subsistence, and problems for
agriculture. Also, with the bureaucratization
of forest management, tensions developed
between the government and the forest
dwellers over issues of abuse of power by petty
officials, loss of rights of collection of forest
products, collective responsibility for damage,
etc.7
Punjab is a well-researched study of these
processes.8 In Punjab, initially unclaimed
wastes were abundant both outside
village areas, and within them under joint
management of village proprietary bodies. The
region had abundant if poor quality land, and
natural conditions that led to a large pastoralist
population. These people migrated along
traditional routes that intersected the open
grasslands. The aim of revenue policy was to
maximize revenue per unit of land. The policy
forced the authorities to try to bring village
wastes under cultivation or reserve these for
the use of the cultivators, and to reserve the
open wastes outside the village areas for the
government. Accordingly, village boundaries
were demarcated and access to the open wastes
prohibited. Some of these vast open wastes
were later used to resettle cultivators in the
canal colonies. The village wastes were divided
among proprietors according to their ancestral
the commons 155
shares, and the pastoralists were prohibited
from using these.
The pastoralist population faced lack of
access to both their traditional routes and old
grazing grounds. A few continued within the
new regime. But large numbers settled down
as peasants and as small-scale traders. Many
turned to wage labour. The wastes declined in
scale. The length of the fallow was reduced.
And there was a disturbance of the balance
between cultivation and livestock breeding,
which may have intensified the effect of
famines in some areas. Customary laws on the
use of the commons were not totally ignored.
But these laws were so badly misinterpreted
that traditional authority declined anyhow.
At the same time, the economic
environment was changing. Canals increased
the productivity of land. The railways
extended markets. Public works were major
consumers of the produce of the waste, from
timber to rubble. Population growth and
migration reduced the supply of cultivable
land. The commons were either reserved
or turned into farms. Within the village, the
decline of traditional authority and increasing
competition for land led to partition and
enclosure of the village commons, as well as to
free riding or overuse of the commons that
remained.
LAND-USE PATTERNS
How well are these changes reflected in land-
use statistics? The official statistical data
on land-use are summarized in Table 5.1.
Common lands can be measured by the extent
of forests and uncultivated wastes available
for cultivation. Wastes not so available usually
represent areas for residential purposes, and
water bodies. These data suggest (a) slight
fall in the area under uncultivated wastes
available for cultivation between 1885 and
156 economic history of india
Table 5.1
Cultivated area (including current fallow)
Uncultivated area
Uncultivated area not available for cultivation
Forests
Total area (net of states and Burma)
Source: Statistical Abstracts for British India.
1921, (b) increase in the area under cultivation
including current fallows, and (c) increase in
the area under forests. However, these data
are not totally reliable. The total figure was
obviously underestimated in 1885. The area
under forests almost certainly reflects not the
area under actual forests, but the area under
the forest department. Nevertheless, even this
data suggests one indisputable fact. Since no
significant change in total area occurred after
1921, per capita availability of the commons
had begun to shrink. Setting aside official
statistics, the total area under wastes and
forests (if Burma is excluded) is likely to have
fallen in the latter part of the British period.
A pioneering paper on long-term patterns
of land-use provides a firmer basis for such
a conclusion.9 This project covers Bihar,
Punjab and Haryana between 1850 and 1970,
combines different types of dataset, and
draws a number of results. The commonly
held view that there was deforestation is
confirmed. In Bihar, forest cover declined by
30 per cent between 1890 and 1970. However,
forests retracted not due to conversion of
forests into arable land, which changed little
in extent, but to degradation of forests into
scrubland, attributed to the demand for timber
and demographic pressure. In Punjab and
Haryana in the same period, arable expansion
occurred at the cost of all forms of woods
and grasslands. In this region, the proportion
of land area under forest was much smaller
Land-use, 18851938 (million acres)
1885 1921 1938
186 254 258
98 90 94
59 66 68
49 101 101
391 511 521
than Bihar to begin with. The declining
proportion of grass and scrublands showed
that significant expansion of arable had taken
place on the fringes of deserts. Decade by
decade, the paper concludes, depletion
and land conversion have proceeded hand
in hand. Vegetation cover moved down the
scale of abundance: from forest to woodland;
from woodland to scrub; from scrub to
grasslands; from grasslands to barren areas.
Simultaneously, cultivated lands have made
large absolute and relative gains.10
CONCLUSION
Three themesknowledge, control, and
commercehave dominated the scholarship
on common property resources in colonial
India, with colonial policy being the point
of intersection between these themes. Over
the entire period, land-use changed and
forests retreated or were degraded. While
environmental history has made advances in
analysing these processes, it remains focused
on policy and administrative ideology. Other
drivers of environmental change such as
demography, and private institutions, remain
relatively under-researched. With common
resources such as pasture tending to become
scarce in the last one hundred years, local
institutional response to scarcity by capturing,
rent seeking, freeriding, or conservation were
probably as important as state-mediated

actions. These private actions need more
research.
If agriculture and the commons were
resource intensive in one way, small-scale
industry was resource intensive in another way.
It is to the creative uses of manual labour in
this area that we now turn.
NOTES
1. See Ramachandra Guha, The Unquiet Woods:
Ecological Change and Peasant Resistance in the Himalaya,
New Delhi: Oxford University Press, 1989; Chetan
Singh, Natural Premises: Ecology and Peasant Life in
the Western Himalaya 18001950, New Delhi: Oxford
University Press, 1998; Vinita Damodaran, Introduction,
in Richard Grove, Vinita Damodaran, and Satpal
Sangwan (eds), Nature and the Orient: The Environmental
History of South and Southeast Asia, New Delhi: Oxford
University Press, 1998.
2. Michael Mann, Ecological Change in North
India: Deforestation and Agrarian Distress in the Ganga
Yamuna Doab 18001850, in Grove, Damodaran, and
Sangwan (eds), Nature and the Orient.
3. Madhav Gadgil and Ramachandra Guha, This
Fissurred Land: An Ecological History of India, Berkeley
and Los Angeles: University of California Press, 1992;
K. Sivaramakrishnan, Modern Forests: Statemaking
and Environmental Change in Colonial Eastern India,
New Delhi: Oxford University Press, 2000; Ravi
Rajan, Imperial Environmentalism or Environmental
Imperialism? European Forestry, Colonial Foresters
and the Agendas of Forest Management in British India
18001950, in Grove, Damodaran, and Sangwan (eds),
Nature and the Orient.
4. Richard Grove, Green Imperialism: Colonial
Expansion, Tropical Island Edens and the Origins of
the commons 157
Environmentalism 16001800, Cambridge: Cambridge
University Press, 1995.
5. J. Hoffmann, Principles of Succession and
Inheritance among the Mundas, The Journal of the Bihar
and Orissa Research Society, 1(1), 1915, pp. 519; Sarat
Chandra Roy, The Mundas and their Country, Ranchi:
Crown, 2004 (original 1912); P.P. Mohapatra, Class
Conflict and Agrarian Regimes in Chota Nagpur,
18601950, Indian Economic and Social History Review
(IESHR), 28(1), 1991, pp. 142; B.B. Chaudhuri,
Peasant History in Late-precolonial and Colonial India,
Delhi: Pearson Longman, 2008, pp. 7169; J.C. Jha,
The Kol Insurrection of Chota-Nagpur, Calcutta: Thacker
Spink, 1964.
6. D.E.U. Baker, Towards an Understanding of
Famine: Northern Madhya Pradesh 18911901, in M.
Hasan and N. Gupta (eds), Indias Colonial Encounter,
Delhi: Manohar, 1993; see also Vinita Damodaran,
Famine in a Forest Tract: Ecological Change and the
Causes of the 1897 Famine in Chota Nagpur, Northern
India, in Grove, Damodaran, and Sangwan (eds), Nature
and the Orient, for a similar story.
7. Richard Tucker, Forest Management and Imperial
Politics: Thana District, Bombay, 18231887, IESHR,
16(3), 1979, pp. 273300.
8. Minoti Chakravarty-Kaul, Common Lands and
Customary Law: Institutional Change in North India over
the Past Two Centuries, New Delhi: Oxford University
Press, 1996; Neeladri Bhattacharya, Pastoralists in a
Colonial World, in David Arnold and Ramachandra
Guha (eds), Nature, Culture, Imperialism: Essays on the
Environmental History of South Asia, New Delhi: Oxford
University Press, 1995.
9. J.F. Richards, J.R. Hagen, and E.S. Haynes,
Changing Land Use in Bihar, Punjab and Haryana
18501970, Modern Asian Studies (MAS), 19(3), 1985,
pp. 699732.
10. Richards, Hagen, and Haynes, Changing Land
Use, p. 724.
6
Small-Scale Industry
I n 1900, the overwhelming majority of
Indias manufacturing workers were
employed in industries that did not use either
machinery or large factories. A 100 years later,
over two-thirds of manufacturing employment
remained intensive in manual labour and
located in small firms. Some of these firms
had roots in the traditional handicrafts.
They employed or adapted technologies and
institutions that had originated in the pre-
colonial artisan tradition.
During the colonial period, the scale of
employment in the handicrafts reduced.
Some historians have read this reduction as
a decline in response to competition from
imported machine-made goods such as
cotton yarn and cloth. This view has been
revised recently. In fact, the experiences of
different segments within this very large
sector could be quite variable. For example,
the manufacture of inputs such as cotton yarn
by hand-spinning declined more than the
manufacture of finished goods such as cloth
by handlooms. The reduction in employment
was also specific to time, peaking in the early
nineteenth century and slowing thereafter.
And some instances of the disappearance
of the crafts reflected competition within
the crafts between different types of firms,
and between factories, and households.
One consequence of the competition was a
substitution of part-time women workers for
full-time men workers, which could have the
consequence of a fall in employment without a
fall in income.
Overall, in the time span covered in the
book, small firms and industries producing
handicrafts showed much turmoil and
increasing differentiation. Some industries
lost markets, whereas some others managed
to adapt by reconditioning old skills to supply
new goods. The present chapter describes
this myriad experience. To begin with, it is
necessary to discuss what kind of industry the
chapter will be dealing with.
TYPES OF INDUSTRY DEFINED
Standard histories of Indian industrialization
deal mainly with modern industry or large-

scale industry, a category defined by three
basic characteristics relating to technology,
organization, and regulation. Large-scale
industry used machinery and steam-powered
technology; was organized in large factories
sometimes employing several thousand
persons; came under the official definition of
a factory, and was regulated by factory and
other laws.1 By contrast, in numerous industrial
firms neither machinery, nor large factory,
nor regulation played significant roles. These
formed the relatively more labour-intensive
component in manufacturing based in family
firms and small wage-based workshops.
Large-scale industry was in many respects
a product of industrialization in Europe. For
the majority of the small-scale industrial
firms, on the other hand, the connection with
indigenous craft tradition was close. Some
of these firms manufactured products and
used technologies that pre-dated the colonial
period. Major examples of such traditional
small-scale industry or handicrafts were
handloom weaving, leather manufacture,
furniture, metal utensils, carpets, and pottery.
There were, however, a few small-scale firms
that were modern in origin; these used some
machinery and machine tools, and had a
Table 6.1 Different Types of Manufacturing Industry
Large-scale
Organization Factories with several hundred workers
and supervisory staff
Technology Modern machinery, use of steam
power, electricity
Regulation Regulated by the Factories Act, and
other acts governing employment and
management
Vintage Colonial
Examples Cotton mills, jute mills, steel, sugar,
paper, etc.
small-scale industry 159
higher average scale than the craft workshop.
In the interwar period, a growth of such
modern small-scale industry took place,
examples being foundries, cotton gins, jute
presses, edible oil extractors, rice mills, bricks
and tiles manufactures, and flour mills. Table
6.1 summarizes the main characteristics of the
three types of industry.
The dividing line between traditional and
modern was not a sharp one. Most types of
modern small-scale industry, in fact, supplied
old products. Thus, grain milled by machinery
and that milled by hand both supplied the
same consumers, but by different technologies.
Sometimes, however, new technology led to a
new product altogether, for example, machine-
milled rice was often seen by the consumers to
be a distinct product from hand-pounded rice.
Sometimes, the modern represented a form of
creative destruction of the traditional. Money
made in traditional small-scale industries was
invested in starting firms that were bigger in
scale, technologically more developed, and
more capitalized; for example, handloom
weavers set up small factories equipped with
power-driven looms.
The dividing line between small scale
and large scale was somewhat sharper.
Small-scale
Modern Traditional
Factories with usually less Households and small
than 100 workers factories
Ranges from hand tools to Use of hand tools
limited use of machinery
Some regulated, some not Not regulated
Colonial Pre-colonial
Foundry, rice and flour Handloom weaving
mills, oil mills, weaving
factories with power-
driven looms
160 economic history of india
Nevertheless close interdependence between
the two could be found. Large-scale industry
supplied raw materials to small-scale industry.
Workers often moved between the two. And
workers and entrepreneurs in small-scale
industry sometimes learnt their skills and
acquired new ideas by working in large-scale
industry. The former could even buy second-
hand machinery from the latter. Textiles supply
examples of all three types of industry.
LONG-TERM PATTERN OF
INDUSTRIALIZATION
The statistics on industrial employment are
available from two main sources: the census
which gives total employment in industry, and
publication on officially registered factories,
which gives employment for registered
factories. Large-scale industry dominated
employment in registered factories. And the
handicrafts dominated employment outside
the factories. The problematical category is
modern small-scale industry, which straddled
both factory and non-factory. There is little we
can do about the overlap, except to suggest that
by looking at industry-wise factory statistics
some understanding of the scale of firms in the
factory sector can be gauged. There is another
problem with these datasets. Occupational
statistics began to be collected and reported
Table 6.2 Employment in Industry, 191131 (millions)
British India and States
Indian Union
Percentage of total employment
Growth rate
Sources: Census of India, various years; India, Statistical Abstracts for British India, Calcutta, various years; Statistical
Abstracts for India, Delhi, various years.
from 1881, but the level of detail and the
definition of work and workers changed so
much between the early censuses, that it is
not easy to create reliable series by using the
censuses before 1911. Having to start from the
1911 census is a limitation in the case of small-
scale industry; it is less so in that of large-scale
industry, which has more modern origin.
Table 6.2 shows that employment in
small-scale industry fell in the colonial census
period, whereas employment in large-scale
industry registered an increase throughout
the twentieth century. An employment
growth rate of 3 per cent per year is large by
any benchmark. Colonial India experienced
a factory-based industrialization. Did it
experience a de-industrialization in the same
time span? Table 6.3 presents data on GDP
originating in industry, and shows that for
a considerable length of time, income per
worker increased in small-scale industry at a
faster rate than large-scale industry.
In short, employment fell but income
increased in small-scale industry. Is this
an anomaly of the data? When we explore
individual industry experience further, we see
that in fact the joint trend might be authentic
and a reflection of increasing efficiency.
This is most evident with the largest of the
handicrafts, the handloom textiles. Handloom
textiles accounted for from a quarter to a
Small-scale Large-scale
1911 1931 1911 1931
12.0 6.3 0.9 1.6
11.2 9.2 0.6 1.0
2.9
 small-scale industry 161

third of employment in small-scale industry. increased in small-scale industry 34 per cent

Increase in labour productivity required less
people to produce a growing total output
(Table 6.4). Evidence of productivity increase
is present also in tanning and metal work.
The productivity increase owed, as we shall
see, to both technological change and a shift
of work from households to wage workshops,
increasing the average hours contributed per
worker. If we assume that the trend began in
the first half of the twentieth century, and that
the rise in real income per worker in small-
scale industry derived only from rise in hours-
per-worker, the estimated hours-per-worker
between 1900 and 1947.
One indirect sign of organizational change
come from datasets dealing with household
industry and womens participation. The
household industry data are available for the
Indian Union after Independence, and suggest
a steady fall in the share of family production
units in employment (Table 6.5). There is
qualitative and indirect evidence suggesting
that the fall had begun earlier. For example
there was a fall in womens participation in
industrial employment (Table 6.6). Women
were more numerous and more easily

Table 6.3 GDP in Industry, 190046 (19389 Rupees)

Small-scale Large-scale
1901 1935 1945 1901 1935 1945
Per worker 114 195
Total (1901 = 100) 100 139
Percentage of national income 15.8 16.9
Growth rate, 190035
Source: Based on S. Sivasubramonian, National Income of India in the Twentieth Century, New Delhi: Oxford University
Press, 2000.
Notes: Figures represent averages over three years. The World War II was a reversal for the artisans by causing both a
consumption crisis induced by inflation, and by making imported materials scarcer.

Table 6.4 Estimates of Physical Productivity in Handloom Weaving, 190139

Looms Workers in Cotton Cloth Output Output per Loom Output per
(million) Handloom (in million lbs of yarn (index) Worker (index)
Industry (million) equivalent)

1901 2.2 3.3 207 100 100

1921 2.0 2.4 235 125 156
1932 2.0 2.1 379 202 288
1939 2.0 n.a. 426 227 n.a.

Source: Tirthankar Roy, Acceptance of Innovations in Early Twentieth Century Indian Weaving, Economic History
Review (EHR), 55(3), 2002, pp. 50732.
Note: Output is average of two adjacent years. Looms and workers exclude Burma. For 1901 there is available a total figure
of 2.7 million looms including Burma, which probably accounted for about half a million looms. A handloom census in
1921 found 1.5 million looms excluding Burma, but the census had poor coverage. The correct figure should be around
two million. Looms and workers include cotton as well as non-cotton fibres. Cotton accounts for over 70 per cent of the
looms. The percentage was higher for the earlier years.
162 economic history of india

Table 6.5 Employment in Households and Wage-workshops within Small-scale Industry,

196191 (millions)

Households Wage-based Workshops

1961 1991 1961 1991

Employment 12.0 6.9 5.0 13.8
Percentage of industrial employment 60 24 25 48
Growth rate 1.8 3.4

Source: See under Table 6.2.

Table 6.6 Women Workers in Industrial Employment, 191191 (%)

1911 1931 1961 1991

British India and states 34.3 29.7
Indian Union 27.3 16.5

Source: See under Table 6.2.

employed in household industry, and rare in
wage-based industrial work. And women were
exiting from industrial work from the early
twentieth century.
Table 6.7 shows that small-scale industry
was more dispersed than large-scale
industry. Further, the two types did not
usually occur together. Nearly half the
employment in small-scale industry was
located in the United Provinces, Punjab and
Madras, whereas large-scale industry was
concentrated in Bombay and Bengal. The
spatial concentration of large-scale industry
reflected its dependence on ports and banks,
whereas the spatial concentration of small-
scale industry reflected its dependence on
traditional markets and skills available locally.
Both types, however, shared similarities in
respect of the composition of industry. By
far the most important industry was textiles
(Table 6.8). One in every four workers was
employed here. Next in importance were food
processing, metals, wood products, and hides
and skins. In short, industries intensive either
in natural resources (cotton, metals, minerals,
animal substances), or labour, dominated the
composition of both.
Any general account of industrialization in
the twentieth century needs to begin with the
pattern of transition in the older handicrafts. It
is to this contentious subject that we now turn.
TWO MODELS OF TRANSITION IN
HANDICRAFTS
Until recently, historians of Indian
industrialization considered that the rich
artisan tradition in the region had suffered a
catastrophic shock in the nineteenth century,
after imported European manufactures began
to flood Indian markets. The process is known
in the literature as de-industrialization.2
Scholars such as Amiya Bagchi, Michael
Twomey, and Amalendu Guha have measured
the extent of the decline, found it of significant
order, and read that fact as confirmation of
a similar hypothesis advanced by the Indian
nationalists at the turn of the nineteenth
century.3 Although Bagchis calculations
have invited some controversy,4 it can hardly
 small-scale industry 163

Table 6.7 Industrial Location, 1931

Large-scale Industry Small-scale Industry

Employment Percentage Share of Employment Percentage Share of

(million) Province/State (million) Province/State

Madras 0.13 8.2 2.38 17.0

Bombay 0.38 23.9 0.69 4.9
Bengal 0.44 27.9 0.93 6.7
United Provinces 0.10 6.3 3.04 21.6
Punjab 0.04 2.8 1.61 11.5
Bihar and Orissa 0.06 4.0 1.29 9.2
Central Provinces and Berar 0.06 3.8 0.69 4.9
Hyderabad 0.03 1.9 0.80 5.7
Mysore 0.02 1.5 0.27 1.9

Total (including other regions) 1.57 100.0 14.03 100.0

Source: See under Table 6.2.

Table 6.8 Industrial Composition, 1931 in industrial employment was concentrated in

(percentage share in total industrial employment) small-scale industry, and was read as evidence
of a loss of demand for artisanal industry by
1931
nationalist historians.
Textiles 26.2 And yet, as Morris D. Morris pointed out, a
Food, drink, tobacco 9.4 large number of artisans continued to function
Hides and skins 2.0 alongside the factory well beyond the period
Metals and machinery 11.1
Chemicals 3.9
when de-industrialization is supposed to have
Wood, stone, glass 10.4 reached its peak.5 They numbered no less than
10 million in 1900, when modern mechanized
Total 100.0 factories employed only half a million.
Source: See under Table 6.2.
Tradition continued, survived, and withstood
modernization on a vast scale. As we have
seen, other anomalies with the orthodox story
be disputed that a large number of artisans were also apparent. The decline in artisanal
changed livelihoods, lost jobs, and left the sites employment seemed to affect women rather
where they had previously done business. The than men, and did not match trends in average
decline apparently continued to show in census income, which showed a rise.
data. Between 1881 and 1931, employment in The survival can be in principle explained
industry declined from about 20 million to 13 by three hypotheses that are consistent with
15 million, while at the same time, employment the story of an overall decline. One form
in agriculture increased from 71 to 100 million. of response is that the artisans survived
The percentage of workers in agriculture competition by becoming poorer, or by
increased from 62 to 71 million, and that in accepting lower wages. I have mentioned
industry declined from 18 to 9 million. The fall earlier that the artisans on average did not
164 economic history of india
experience a fall in wages or productivity.6
Another response is that the state came to the
rescue of the handicrafts. The state did in fact
install protective policies for handicrafts after
1950, sheltering not only those exposed to
the danger of extinction but, more wastefully,
many who were not so vulnerable (Chapter
12). Although elements of the discourse that
eventually produced such a policy can be
traced back to the late colonial period, the
colonial state did little concretely to either
strengthen the crafts or shelter them from
competition. A third form of response is
that the nationalist spirit of swadeshi revived
the consumption of domestic artisan goods
by discouraging imports. But the swadeshi
spirit was restricted to particular regions and
groups. And its impact was contradictory,
for the swadeshi campaigners also tried to
block access of the artisans to cheap imported
inputs.7
The alternative to this view would be that
the artisans, or at least a substantial segment
among them, rationally adapted to a new
economic environment. The environment
consisted of three main elementssegmented
markets, globalization, and increasing wage
employment in place of self-employment.
Craft traditions in India were extremely
diverse. They contained intermediate goods
(for example, cotton yarn and dyes), tools
for the peasants (ploughshare or hand
implements), consumer goods for the poor
(coarse cloth, pottery for daily use, grain
milling), and commodities for the well-off
consumer or the export markets (decorated
cotton cloth, silk, brassware, carpets, leather
goods). The Industrial Revolution more or less
decimated the first three classes. These goods
were standardized in quality and could be mass
produced in machines. But it did not affect
the fourth adversely. Commodity production
intensive in craftsmanship (decorated cotton
and silk, urban blacksmiths, and carpenters)
or very cheap resources (leather), did not
face significant competition (see Figures 6.1A
and 6.1B for a representation of the diversity
within the crafts).
Interestingly, the surviving artisans gained
from globalization by obtaining access to
imported raw materials, distant markets, and
useful new knowledge. These adaptations,
however, did not happen everywhere, but
remained concentrated in certain towns and
cities where wealthier artisanmerchants
migrated. In these sites, moreover, migration
sometimes had the effect of dissolving the
old household forms of labour relations, and
encouraging wage employment. Migration
in India was a male-biased process, so that
increased wage work and increased hours-per-
worker were necessarily accompanied by a fall
in female employment. This is exactly what
happened in India.
Recent scholarship on the history of craft
industries in early modern Europe and Japan
note the presence of a form of adaptation
variously called proto-industrialization,
industrious revolution, or labour-intensive
industrialization.8 In both cases, peasant
families respond to increased potential
market for their goods by working harder
and devoting more time than before to wage
employment and commercial work. In India,
a very similar dynamics of increased wage
work, commercial work, and intensity of
work characterized one segment of the crafts.
However, in distinction from Europe or East
Asia, the artisans concerned were necessarily
relatively specialized and skilled ones, not the
part-time peasants.
The principal example of adaptation within
a traditional small-scale industry is handloom
weaving.
 small-scale industry 165

Figure 6.1A Two Faces of Handicrafts in Early Twentieth Century India

This postcard shows the interior of a carpenters workshop (possibly Bombay), with a team of skilled and well-dressed
male workers of different ages. City carpenters in this time successfully applied Indian design skills upon European
furniture types, thus serving a hybrid concept of interior decoration. In the process, they also switched to factory type
organization, and a combination of indigenous and imported tools.
Images of Asia

HANDLOOM WEAVING these clusters. In the twentieth century,

General Trends
If the early nineteenth century saw large job
losses in hand-spinning and hand-weaving,
conditions improved in the second half of
the nineteenth century. Commercialization
of agriculture improved purchasing power
and extended trade in cash-crop regions. The
demand conditions favoured both handloom
and mill-made cloths. Spinning mills began
to be erected in cotton growing regions in
western and southern India, and handloom
weavers were among their clientele. Weavers
had reason to relocate their businesses to
capital accumulation unfolded upon these
foundations, even though it was severely
disrupted by the two World Wars.
At the end of World War I, two-and-a-half
million handloom weavers were in business.
The total employment in industries connected
with hand-weaving was possibly about three
million or more. This figure represented 20
per cent of industrial employment. Handloom
weaving was by far the largest industry.
Handlooms accounted for about 25 per cent
of the cotton cloth produced annually in the
first half of the twentieth century. Including
cotton, silk, and synthetics, but excluding
wool, handlooms market share in total cloth
166 economic history of india

Figure 6.1B Two Faces of Handicrafts in Early Twentieth Century India

A woman grinding grain in Jaipura picture of heavy yet unskilled work, individual rather than collective
work, set in a household as opposed to a workshop, and a picture of poverty and drudgery.
Images of Asia

consumption in terms of value may have been
about 50 per cent at the end of the 1930s.
The market share of handloom cotton cloth
was roughly stable between the 1890s and the
1930s. The total production of cotton cloth
expanded about 30 per cent between 1900
and 1939. The estimated number of looms at
work did not change at all, but the estimated
number of workers fell somewhat. Rising
production and constant loom count suggests
that the productivity and the capacity of the
looms increased (Tables 6.4, 6.9). This can be
independently confirmed from the information
we have on technology.
The presence of handloom weaving on such
a scale is one of the puzzles in the history of
Indian industrialization. The power-driven
loom was on average four to six times faster
than the hand-driven loom. Why, in the
presence of such a wide productivity gap,
did the handloom survive at all? We should
approach the question in two steps, one
dealing with the market for cloth and the other
with the technology of production.
Demand
Research has shown that competition
between machinery and crafts was limited
to certain products. A part of what the hand-
weavers made was highly skilled and/or
met specific wants. Traditional preferences
enabled handlooms to survive. In the mid-
nineteenth century, two types of cloth faced
keen competition from foreign or Indian mill-
made cloth: coarse-medium cotton cloth, and
printed and bleached cotton cloth. By contrast,
cloths that used coarse or fine cotton yarn,
or complex designs woven on the loom, or
non-cotton yarn, tended to use the handloom.
 small-scale industry 167

An example of a designed garment was the
sari. The sari allowed for particular types of
border design that only the handloom could
create. The handloom survived partly because
that type of sari continued to be in demand.
These designs or products were either so labour
intensive that the mills did not enter them by
choice, or used non-cotton fibres (silk and
synthetics) that the cotton mills did not want
to handle because they did not make yarn from
those fibres. Thus, in cloths made of silk and
other fibres, handlooms dominated.
In short, the markets for artisan and mill-
made textiles were segmented to a large extent.
But the figures in Table 6.9 suggest that not
only was there survival, in the early twentieth
century, the weaving industry was expanding in
output and labour productivity. Evidently, some
of the specific markets for the artisan goods
did expand.
Although agriculture was generally stagnant
in the early twentieth century, some forms of
rural income were growing. Real wage in large-
scale industry increased 85 per cent between
19004 and 19359. Real wages of skilled
and unskilled workers outside agriculture
and manufacturing increased 5060 per cent.
Within agriculture, foodgrain production was
stagnant, but non-foodgrains, which included
major industrial raw materials, expanded. In
some regions, agrarian expansion continued.
In South India generally, agriculture was doing
well and so was weaving. In Bengal, agriculture
was stagnant and weaving was in decline.
Thus, demand for such mass consumables as
handloom cloth was undoubtedly supported
by the purchasing power of a section of the
peasants and workers.
Industrial Organization
On the supply side, there were signs of an
institutional adaptation. The usual form of
industrial organization in the nineteenth

Table 6.9 Scale of the Indian Textile Industry, 1920, 1940

1920 1940

Handloom industry
Workers 2,407,300* (..)
Looms 2,025,000** 2,193,262
(Cotton looms) (..) (1,417,200)
Idle looms (..) 265,464
Production (million yards of cotton cloth) 931 1703
% of domestic cotton cloth consumption 25 28
Mill industry
Workers 332,200 625,000***
Looms 117,558 199,000***
Production (million yards of cotton cloth) 1,529 3,738
% of total domestic cotton cloth consumption 44 62

Source: India, Fact-Finding Committee (Handlooms and Mills), Delhi: Government Press, 1942, chapter II.
Notes: * Census estimate of actual workers.
**There was a handloom census in 1921, which did not cover several major states and provinces. The 1940 estimate is
more comprehensive. I multiply the 1940 loomage with the 1920:1940 ratio of looms in regions covered in both years,
to derive an estimate for 1920.
*** refers to 1943.
168 economic history of india
century was the household. Women and girls
of weaving families were engaged in warping
the yarn, winding the thread onto bobbins
for use as weft yarn, and they shared with
men the task of sizing, that is, applying starch
paste on the warp thread to make it stronger
to withstand the tension of the loom better.
Weavers as a rule were men, sometimes
assisted by young adults. About one in ten
women in weaver families knew how to
weave. Usually, they learnt weaving half-
heartedly and from observation rather than
via systematic apprenticeship such as the boys
went through. In fields allied to textiles, such
as sericulture, women performed vital tasks in
the manufacturing process. Wherever mens
and womens work could be connected in this
way, womens work participation tended to
be higher and so was the extent of household
industry. Thus, women formed 40 per cent
of the textile workforce in 1931, and a similar
percentage in household industry.
The situation changed in the twentieth
century. The household was in decline in
handloom weaving. In the interwar period,
a significant number of handloom factories
appeared in the textile towns of the cotton
regions of western India. These factories
employed migrant male labourers, and were
started by rich weavers and merchants who
had made money in the relatively new trades
in cloth, yarn, dyes, gold thread, and silk. They
generally used improved tools.
Because segments of depression and
dynamism co-existed, capital and labour
had become increasingly mobile. There was
migration from rural regions towards new
points of trade, and towards the railways and
spinning mills. One example of such a flow
is a migration into textile towns in western
India such as Sholapur, Malegaon, Bhiwandi,
Burhanpur, and Surat. The workers, as well
as the capitalists, were handloom weavers
who came from depressed and overpopulated
regions like eastern UP and the Hyderabad
state. Today, in many towns of western India,
the older quarters house settlements of
handloom weaver communities. Some of them
continue to work in the textile business, though
rarely in handlooms (see Map 6.1 for the major
urban sites and clusters of craft production).
The family firm and the apprenticeship
system were the general pre-factory systems
of production. Employment practices in these
systems contained an element of regard that
took different formsfilial ties, gender roles,
or an ideology of masterhood, according to
the context. In the traditional employment
set up, the community itself was at times a
resource, leading to different ways of pooling
and allocating labour. This whole range of
social-cum-economic systems began to give
way to casual labour, factory labour, and male
migrants in new industrial towns. There was
no quick dissociation, rather wage relations
continued for long to be embedded in non-
wage ones. The transition nevertheless was
nearly completed in the power-loom towns by
the end of the twentieth century. The overall
consequence of all this was the reduction
in the percentage of women workers in the
workforce (Table 6.6).
Technology
The early twentieth century saw an increasing
adoption of several new types of tools and
processes. Three things combined to encourage
technological dynamism: a campaign by
provincial governments, capital accumulation,
and knowledge spillovers. The increasing
wealth of capitalist weavers, and the increasing
stability of their markets, made them more
willing to try new tools. It is in this activity that
foreign contact contributed in the most positive
ways.

Nearly all of the tools and processes
adopted by the weavers in late colonial India,
such as the fly-shuttle slay, the frame-mounted
loom, the jacquard, dobby, drop box, and
synthetic dyes, had been invented in Europe
and came to India embodied in imported
equipment. Indian artisans inherited a whole
menu of useful knowledge from the European
proto-industrialization of a century before.
The older vintage of loom was the throw-
shuttle type, set up in a pit dug in the living
room of a weavers home. From this system,
there was a change towards the fly-shuttle
loom, or a loom mounted on a wooden frame.
The frame loom took up less space, could
weave longer lengths of yarn, and thus, became
popular with the handloom factories. Warp
preparation changed from systems whereby
the warp was stretched out, towards the use
of a warp beam such that longer lengths of
thread could be woven. Warp preparation was
previously a side activity of women in weaving
localities. The warping mill replaced this form
of collective labour. Another type of technical
change was the synthetic dyestuff in place of
vegetable and animal substances, with the result
that dyeing became less knowledge intensive
and specialized, and was slowly integrated into
textile production.
Through these changes and through the
handloom factory, weaving and processing
separated out as tasks, and thus specialization
and division of labour increased in comparison
to household-based weaving.
Wages and Earnings
Who gained from this market-driven
technologicalorganizational change? There
are several datasets on wages and earnings remained depressed. These datasets ignore
in handlooms in the early twentieth century.
We cannot be sure if all of them referred
to the same type of worker. In an industry
small-scale industry 169
undergoing a change from households to
factories, wages sometimes referred to the
income of a family working on putting-out
contract, and sometimes to wages of hired
labour. There is no easy way to disentangle
these types. There are also difficulties in trying
to derive an all-India average, or a continuous
time series.
Sivasubramonians work on National
Income collates some wage datasets, which
seem to be unambiguously about hired
labourers.9 These suggest that real wages
increased rather modestly between 1900 and
1912. Such a trend is consistent with another
wage data source of this period, Report on
an Enquiry into the Causes of Rise in Prices in
India (1914). Data for the second decade
of the century are harder to come by, due to
the discontinuance and narrower coverage
of the major official sources on wages. The
War years saw a massive rise in prices, and it
is a fair inference that the inflation reduced
consumption and artisan incomes. For the
long run, Sivasubramonian concluded that
weavers money wages declined from a high
level [in 1900] to very low levels by the end of
the thirties.10 Major official sources too were
pessimistic about wages. I found some increase
early in the interwar period, but a reversal
in the post-Depression years, which is how
agricultural wages moved too.11
Usually, however, these conclusions of
stagnant wages refer to (a) ordinary semi-
skilled cotton weaving, and (b) hired workers.
Competition with mill textiles and the small
purchasing power of the poorer classes of
peasants ensured that returns to low-skilled
textiles remained small. Unemployment
among such weavers ensured that wages
inequality among weavers.
For the interwar period, I attempted a
reconstruction of handloom incomes.12 The
170 economic history of india
main lesson of that exercise is that different
classes had divergent experiences. Several
datasets on earnings from silk, fine cotton,
and exportable goods over different pairs of
years in 18801940, suggest, after adjustments
made for price movements, a rising tendency
in general. If this is correct, and it is also true
that the average real wage in ordinary cotton
weaving did not change in the long run,
inequality would have increased. A similar
point comes through in profit data. In the
interwar period, prices generally fell, with
some exceptional years. But money wage
and yarn price fell somewhat faster than
product price in handlooms. Value added and
profitability increased in 192440. Rates of
profit were high by any standard around the
1920s. Profits were squeezed somewhat in the
post-Depression period, but did not decline
to the extent of money wages. It is plausible
that non-wage incomes in general including
merchant profits were neither stagnant nor
small in the interwar period. It is, therefore,
possible to conclude that inequality increased
in handloom weaving.
Inequality increased because the transition
in the industry increased returns to capital and
skill, and benefited capital and skilled labour
more than it did generic labour. Capitalists
gained because there were new avenues for
making money, but these avenues required
more capital. For example, cotton yarn,
earlier made locally by hand, was now either
imported or manufactured in mill towns, and
distributed in handloom towns and villages by
merchants specializing in new long-distance
trades. Dyes, gold thread, and silk yarn were
earlier obtained locally, and partly imported
about 1940. Merchant profit as a category,
and merchants themselves became more
noticeable in sources on weaving from the
interwar period.
Inequality and Differentiation
The general basis for growing inequality in
weaving was differentiation amongst weavers
based on access to savings and levels of skill.
At the top were groups of producers that
manufactured silk, or cotton cloths involving
complicated designs, often used elaborate
looms, were urban, took part in long-distance
trade, and were in some way involved in a
business network. Often, such weaver elite
reported themselves as migrants. These claims
were not always verifiable, and they no doubt
served a purpose of emphasizing a sense of
distinctiveness. But in quite a few cases, these
claims were credible, proven, and reflected
the fact that in the eighteenth century many
nascent states had tried to invite and settle
skilled artisans in their domains in the interest
of promoting commerce and meeting their
own consumption needs. At the other end
were the rural artisans who supplied simple
routine articles to their peasant neighbours. In
the case of coarse cotton textiles, artisans and
agricultural labourers were often indistinct. A
large group of people performed both labour
and industry according to season. Rarely were
these articles traded beyond the immediate
neighbourhood. In the nineteenth century,
migrations of artisans like these were also
induced by famines and economic distress.
Generally speaking, the weaver handling silk, or
fine cotton cloth had an income between three
and five times that of a weaver making coarse
or ordinary cloth.
Between these easily identifiable extremes,
there were many types of weaver who
combined rural and urban, local and long-
distance trade, high and low skill, more capital
or little capital. They strove to join elitehood,
but were often pushed by circumstances to
regress to labouring. These basic hierarchies

influenced how groups of weavers responded
to changes in fortune. Throughout the early
twentieth century, the rural labourers engaged
in coarse weaving on the side tended to leave
textiles and moved to general labour and semi-
skilled services. The skilled urban weavers and
silk weavers behaved differently. When the
silk weavers had to leave weaving, they moved
to skilled professions and trade rather than
labour. Quite often, they tried to improve their
conditions by migrating from depressed regions
and resettling as weavers at points where there
was a flourishing handloom trade.
Powerloom Industry
The traditional handloom set up in a pit in the
handloom weavers living room was a far cry
from the power-driven loom. But the automatic
handloom mounted on a frame inside the
factory, and the power-driven loom, looked
similar and worked on the same principle, but
for the source of energy. In the interwar period,
many power-driven looms were discarded at
scrap rates by the mills. Buying such a loom and
reconditioning it to fit the weavers factory shed
was not an expensive proposition. Relatively
well-off weavers started to replace handlooms
by power-driven looms in products where such
a switch was possible. The first such looms
appeared in handloom towns about 1900 and
were run with fuel oil. At the same time, and
probably unaware of this small beginning, A.C.
Chatterton, the Director of Industries, Madras,
predicted that small power loom factories might
be worked with great success in this country.13
From the 1930s, the power-looms spread much
faster when many interior towns with handloom
industries received electricity. The ground was
prepared for what was to become Indias largest
industry at the end of the century, and the most
fertile training ground for the development of
small-scale industry 171
indigenous manufacturing genius, to quote the
prescient Chatterton again.
In 1940, there were 15,000 powerlooms.
About 1995, there were 1.5 million looms. A
large part of this staggering growth occurred
after the recent trade liberalization. From 1985
until 1997, the main export commodities to
benefit from Indias liberalized trade regime
were textiles and clothing. The powerloom
industry supplied nearly all of the demand for
fabrics from apparel exporters. Looms expanded
by about 700,000800,000, which meant
additional employment of around two million
persons. In 1991, the powerlooms employed
about four million persons.14
OTHER INDUSTRIES
Iron
In pre-colonial India, iron ore and charcoal
were available in quantity along the fringes of
the Deccan plateau and in some Himalayan
regions. However, most such sources of supply
were located far away from the cities and the
ports, and far away from the main potential
consumers of complex metal products. Artisan
communities producing semi-finished iron
tended to be located near the ores and worked
on a scale and level of capability adapted to
meeting local rural demand for iron. The
singular feature of the industry was that the
knowledge of iron-making remained confined
to communities that were rooted near the ores.
The indigenous smelting industry was almost
universally a local craft pursued by semi-
nomadic tribes. The knowledge of smelting
did not travel far from the hills and forests
where the ore deposits were found. These
groups were quite often miners, smelters, and
smiths at the same time.
The method of production was exceedingly
simple. A band of a dozen or so men mined
172 economic history of india

75 90

AFGHANISTAN

T I B E T

Amritsar Simla
30
Lahore
30
Ludhiana
Moradabad
Delhi
IA
S

N E PA L
R
E

BHUTAN
P

Agra

Benares
Karachi Kanpur

Santipur

Calcutta
BU R M A
s
Surat Nagpur ange
of the G
Mo uths

Malegaon
Bhiwandi Bay
of
Bombay Ahmednagar
Bengal
Poona
Hyderabad
Sholapur
15 15
A ra b i a n
Sea Indian Ocean

Madras
Textiles
Salem Leather
Tanjore
Metals
ait
Str
Cochin Madura Palk Concentration of
handloom weaving
Gulf
of
Mannar 0 200 400 Kilometers
CEYLON
0 200 400 Miles

75 90

Map 6.1 Small-scale Industry Clusters

on the surface of a small area, set up a furnace,
and when the wood fuel was exhausted in
that area moved away to a different location.
The whole process occurred on a small scale
by European standards. The typical output
of one round of smelting in a forest furnace
was about 5 kgs crude iron. The best estimate
of annual output would not perhaps exceed
12 tons. Due to the small scale, production
costs were high, compared with the much
larger smelting workshops in Western Europe.
But the industry was protected by high
transport cost. Transport costs limited trade,
average scale of production, and interregional
knowledge exchange. The range of iron goods
was limited to agricultural implements. A
much smaller but wealthier urban tradition
manufactured a diverse range of consumer
goods, but usually utilized recycled material
rather than ores.

In the second half of the nineteenth
century, indigenous smelting entered a
crisis. When European iron began to come
into India on a large scale from the early
nineteenth century, the local industry quickly
became obsolete. Throughout the 1800s, iron
and hardware were the main imports after
cotton textiles and railway materials. The
railways reduced transportation costs, and
brought markets within easy access of the
cheaper imported pig iron and steel. Wood
fuel began to become scarce, as forests were
reserved. Alternative demands for wood
in construction, shipbuilding and railways
grew. In some regions, wood even ran out.
Given its dependence on rural markets,
artisanal smelting could not expand its scale,
economize, and thus absorb costs. European
artisans in India tried the larger scale and
horizontally integrated factory. The physical
distance between their targeted market, which
was the government, and the origin of ores
again posed a transport problem. The one
hypothetical advantage they had was cheap
labour. But Indian labour was located near the
ores, usually found working within traditional
institutions such as the household, and used
to operating small-scale units. On the other
hand, skilled labourers imported from Britain
were few, expensive, and often unreliable
and inefficient. Moreover, in common with
indigenous smelting, European smelting had
to contend with the rising scarcity of wood
fuel.
But even as there was loss of an extensive
smelting industry, the net effect of imported
iron was not necessarily negative. It stimulated
consumption, and indirectly helped the
blacksmith. In the nineteenth century,
Indians consumed iron in greater quantity
and variety than before. According to one
estimate, the average consumption of iron
small-scale industry 173
increased from 0.9 kgs/capita in 1788 to 3.2
kgs/capita in 1914. While the proportion of
import in total consumption increased (from
3078 per cent), imports did not only replace
domestic production but also stimulated it.15
For example, cutlery, which had been a semi-
specialized urban branch of the smithy, quickly
switched over to Swedish and Sheffield steels,
substituted imported cutlery, and strengthened
its own craft skills, while cutting off ties with
indigenous smelting.
The main beneficiary of imported iron
was the skilled blacksmith. As research on
national income has shown, the skilled
blacksmith experienced a steady increase
in real wages, and more village blacksmiths
joined the urban foundries and forges. In
contrast with the smelters, many of the
specialist blacksmiths had belonged to urban
communities, were located closer to consumer
markets rather than ore supplies, and were
therefore less susceptible to the adverse
effects of narrow markets. In this sphere,
globalization had a more adaptive effect.
The only complementary factor necessary
to make good use of imported tools and
ideas was craftsmanship, already available in
abundance. Retraining needs were not always
great and retraining prospects better in the
towns. Much knowledge was embodied in
small tools, which were partly imported, and
partly substituted with refashioned local tools.
There were small economies of scale in the
smithy; consequently capital cost was of little
consequence. The city, the ports, the barracks,
and the public works, allowed a convergence
of knowledge to develop between European
and Indian artisans. Blacksmiths benefited
from the unconventional communication
opportunities provided by these new sites,
while adapting new knowledge in their own
way.
174 economic history of india
Leather
Tanning of hides and skins became a major
export item in the late nineteenth century.
From the 1870s to the Great Depression,
it remained a major export. Thereafter, the
export of tanned hides and skins fell, but
increasingly tanned hides were being used as
inputs by local leather manufactures, and the
export of such manufactures began to increase.
Today, leather is one of South Asias principal
manufactured exports. Much of the industry
built up on a foundation of skills, expertise,
and capital accumulated during the colonial
period.
Tanning was originally a rural craft, and
practiced under conditions of extreme
servitude. It occupied groups of people who
were also part-time agricultural labourers.
They were placed lowly in caste hierarchy,
and had little bargaining power in dealing
with their main customers, the peasants. This
description applies, with some variations, to
the main tanning caste of north India, the
Chamars, who were also the most numerous
caste in north India. In most places hides were
bartered for grain. But the terms of the barter
were adverse for the suppliers. The grain share
of the leather artisans was smaller than their
share in population. The usual organization in
rural tanning was either a single household, or
a kind of collective. The tanning locality was
set a little apart from the main village where
the village was a large one. In this locality,
men, women and children worked together in
jointly owned pits.
The export market concentrated hide trade
in Kanpur, Madras, Bombay, and Calcutta.
And the superior quality demanded by foreign
consumers of Indian hides encouraged the hide
merchants to establish factories in these cities.
These developments first of all weakened the
rural barter system. Anyone who had access
to hides now wanted to sell it to an exporter. It
also weakened the servitude by encouraging
leather artisans to migrate to the cities in
large numbers. They were re-employed as
factory labourers in the merchant-owned
urban tanyard. In the course of this change,
flaying, tanning, and leather manufacture,
which had formerly been performed by the
same person, separated out. Division of labour
and specialization increased thereby. The old
customs did not completely vanish, but often
persisted in the tannery in the form of a direct
or indirect hierarchy between workers and
supervisors, and could permit poor working
conditions inside the factory. But substantially
the factory was a new and freer system of work.
Luxuries and Exports: Woollen Carpets,
Engraved Brassware, Shawls
In north Indian towns patronage of pre-British
rulers had led to the growth of a number of
highly skilled crafts. This was so especially
in the heart of the former Mughal empire, in
towns such as Delhi, Agra, Amritsar, Lahore,
Multan, Srinagar, Lucknow, Moradabad,
Farrukhabad, and Benares. The major
skilled crafts were woollen carpets, engraved
brassware, wood carving, ivory carving,
jewellery, decorated pottery, and shawls. These
were urban crafts, and had participated in
long-distance trade even before the nineteenth
century. But, by and large, the reason they
existed was for the consumption of the rich
persons of these towns. In some cases they
were made inside factories owned by these
powerful customers.
In the colonial period, many of these rich
customers became impoverished. But at
the same time, these products began to be
exported as well as traded over long distances
within India. The woollen carpet is a major
example of successful adaptation of marketing.

Other examples of shift from local to long-
distance trade are Moradabads decorated
brassware and Srinagars shawls. Lesser
examples are, Benares brocades, Saharanpur
woodcarving, Khurja pottery, Lucknow
silk-cotton embroidery, and Farrukhabad
prints. One result of commercialization was
increasing competition between craft towns.
In this competition, many towns that had the
industry on a small scale, that were located
too far from new trade routes, or that did not
produce good quality products, disappeared.
The industry came to be concentrated in fewer
places where most of them can be found today.
Industrial organization did not change
dramatically in the colonial period. These
crafts were practiced either in households, or
more commonly, in workshops where a male
master-artisan worked with his apprentices,
usually young boys. If in leather and weaving,
there was a tendency for factories to grow,
in the skilled crafts, the household and the
apprenticeship system survived. In these crafts,
training on the job mattered. The artisans
wanted to preserve skills but restricted access
to those skills to all but a small trusted group
of people. The old institutions served these
functions well.
As elsewhere, in these crafts too, new types
of merchants appeared and they wanted to
control production. What emerged was a
variety of contractual systems between the
households or master-artisans on the one
hand, and the merchants on the other. One
example is Agra and Amritsar carpets, where
European and American carpet traders started
factories in the interwar period. In these
factories, several masterapprentice teams
came and worked. They were not really the
owners employees, but contractors who
brought their own work teams to the factory.
Such two-stage three-party contracts
between the merchant and the master, and
small-scale industry 175
master and apprenticeswere often known as
karkhanadari in northern India. Given that a
clear employment contract did not often exist
in these factories, they were really not factories
in the modern sense.
Weaving of Wool16
Weaving of woollen garments and blankets was
a rural and nomadic occupation and almost
as dispersed as cotton handlooms in the mid-
nineteenth century. Wool was earlier produced
and woven by the shepherds themselves,
because both sheep rearing and domestic
labour were relatively cheap. Sheep rearing
was cheap because commons and wastes were
plentiful, and because it provided the shepherd
with plenty of free time. Arable land was
frequently used as pastures for sheep flocks
because such a practice improved the fertility
of the soil. However, the quality of such home-
grown wool was rather poor.
From the end of the nineteenth century,
closure of the commons reduced the supply of
home-grown wool as well as the locally woven
blankets and garments. Long-distance trade
in both wool and woven products expanded.
Sheep rearing relocated towards areas that
could support better breeds and easier grazing
conditions. The railways played a role in
deciding which regions would specialize in
woollen weaving. Thus, Rajputana specialized
in wool production, whereas UP and Punjab
developed as major weaving centres. At the
same time, better quality, imported woollen
garments altered tastes and introduced
new standards. Consumers increasingly did
not want the coarse rural blankets. They
preferred the finer products made in new,
urban, weaving establishments, using traded
wool. Competition from urban weaving
and depletion of pastures brought about a
separation between spinning, weaving and the
176 economic history of india
rearing of sheep. Specialization increased in
this way.
Muzaffarnagar and Bijnor in UP and Panipat
and Ludhiana in Punjab developed handloom
powerloom complexes in blanket weaving.
The railways enabled these towns to develop as
points of trade from which finer blankets were
exported towards Bombay and Calcutta. During
World War I, the Munitions Board began to
contract orders in these cities for blankets and
smaller articles. Many cotton weavers in these
cities shifted to wool, and the existing woollen
manufactures expanded and diversified.17
Potters and Carpenters
The north Indian potters, Kumhars, were also
known to perform rural labour. The growing
demand for metal utensils, the rather poor
quality of their pottery, and the difficulty of
long-distance trade in the average earthenware
articles adversely affected them. The vessels of
mass consumption were flimsily made, given
the force of a custom that frowned upon re-
usage of earthenware. The only segment where
superior skills could be seen was the objects of
art made by specialist groups. Their industry
needed more expensive kilns. Towards the end
of the period of study, this sector diversified
into ceramic tools and components, which is
now one of its major outputs.
The major occupation of carpenters in the
colonial period was the supply and repair of
agricultural implements. As a result, carpenters
and smiths often belonged in the same caste
but different sub-castes. Usually they were
found in close proximity. Like the blacksmiths,
a bifurcation of demand occurred in the
case of the carpenters as well. The furniture
industry as we know it today developed from
the colonial period. The very nature of interior
decoration and furnishing, which urban
Indians consider standard today, was a product
of the cultural contact with the British. The
industry developed initially by drawing in
artisans who were engaged in supplying
traditional rural demand. It was concentrated
in towns and cities that had a large number of
people willing to buy new types of furniture
and was mainly factory based. Thus, in the
course of adapting to a new demand, there
occurred increasing specialization, urban
migration, and changes in organization in
favour of larger city-based workshops.
LABOUR AND CAPITAL
Increasing Wage Employment
In the skilled crafts there was no explicit
labour market in existence. Also, in the
absence of migration or technological change,
wage labour developed to a limited extent. As
the skill-intensive industries commercialized,
merchants put out work to producers who
worked in traditional types of firms. These
firms recruited labour by using informal and
personal ties. Such hiring happened in broadly
two ways. Some firms recruited workers
mainly from within the family. In other firms,
the head was a master-artisan who hired
apprentices from outside his own family. The
family firm and the masterapprenticeship
system were the two general pre-factory
systems of production that survived the
colonial period, and participated in long-
distance trade and industrialization. Both
these institutions were tenacious in the skilled
crafts. They supplied the important function
of industrial training before technical schools
were started. In the relatively unskilled crafts
the traditional institution tended to decay
more quickly. In both examples, children
were employed. But as long as they were
employed within the family, within the
masterapprenticeship system, or within

localized limited hiring, children worked
without the presence of an explicit market for
the services of child labour. The family firm
and domestic labour was usual among Hindu
artisans, the apprenticeship system among the
Muslim artisans.
There were also mixtures of family labour
and masterapprenticeship. One such form
can be called domestic collectives. Women
were often found working in collectives inside
someones home or in common spaces inside
a village populated by artisans. North Indian
embroidery, especially Lucknow chikan,
is an example of the former. Warping of
thread before it went into the handloom was
performed by women and girls in a common
area shaded by trees inside the weavers
village. This is an example of the latter type
of domestic-collective work. A second such
hybrid can be called inter-family hiring. A
cluster of families sometimes exchanged
young apprentices within a neighbourhood.
Such hiring involved boys. It often led to near-
formal apprenticeship. There is a description
of such a system in south Indian silk weaving.
The respondents explained the apprenticeship
system in the same terms as a school, a learning
and disciplining institution. The loom was
meant to discipline unruly children of ones
professional comrades, boys who would
otherwise grow into disorderly youth and men,
predisposed to drunkenness and brawls.18
Despite these useful functions, households
and apprenticeships became weaker than
before. As we have seen, new opportunities
often demanded more capital. Limited
access to capital made it difficult for the
family to survive. Growth of trade and
market integration encouraged clustering
and agglomeration of the business, which
encouraged migration, and since migrants
tended to be males, migration encouraged
a break-up of the family as a unit of work.
small-scale industry 177
Some technologies were incompatible with
the household form of production. Surplus
labour available for industrial employment
increasingly originated among groups,
like small peasants, that did not have prior
experience in industry, and thus had no prior
ties with traditional employment institutions.
In some industries catering to a larger market,
craftsmanship had become less relevant
than before, and with it the family firm or
the apprentice system lost one reason for its
existencetraining. The tendency was visible
in situations where a rapid growth of factories
took place, such as handloom weaving in
Sholapur, tanning of hides and skins, the zari
industry in Surat, processing of yarn prior to
weaving; and in some skilled crafts of northern
India where merchants owned large sheds that
provided a place for master-artisans to come
with their apprentices to work.
The migration of artisans was intimately
connected with these institutional changes.
From the last quarter of the nineteenth
century, there was report of steady and large-
scale migration of artisan groups to industrial
towns. Some of them gave up their craft to
become general labour. Some entered the
mills. Still others only relocated their craft near
sources of raw material and market points.
Employment was typically in factories in these
towns. In almost all cases, the relocation of
work from the countryside and households
towards the urban factory attracted more men
than women (see Chapter 11 for a discussion).
The conditions of employment of children
must have changed too, but we know too little
about that process. The masters would not see
themselves as teachers of a craft, but perhaps
increasingly, just as employers.
Small-scale industry in general had little
or no contact with the formal banking sector.
It had little contact even with the informal
money and capital markets. The main form of
178 economic history of india
working capital finance was trade credit and
persona; savings. There is evidence that it was
easier to raise fixed capital loans in certain
towns than in others. Surat, a major textile
centre, was an example where employers and
traders in the zari industry routinely gave loans
to their contractors for purchase of machinery.
How universal such practices were, and why
they occurred in certain towns is not clear.
The wholesale trader, the raw material
importer, and the factory owner, were the new
capitalists. In industries such as handloom
weaving, the capitalists came from artisan
communities. On the other hand, in tanning,
capitalist groups came from merchant
communities. In explaining this pattern,
differences in the level of skills should be
emphasized. In many traditional industries,
craftsmanship was the main form of fixed
capital. Those who possessed such capital
could often control the trade as well, because
they could guarantee quality. In weaving,
that logic worked more than in a relatively
unskilled craft such as tanning. Further, in an
exportable craft like leather, the larger scale
of trade and the non-traditional market made
working capital and information both scarce
resources. In this case, the merchant firms
had greater control over production. In the
case of crafts serving local consumption, by
contrast, the producers knew the market as
well as the marketing system better, and the
need for capital was smaller. Community
resources mattered too. Silk weavers had been
urban elites and had well-developed, collective
associations and guilds, which could be used
in a market context to diffuse the ill effects
of growing inequality, keep control over
scarce capital and knowledge, and channel
community resources to the benefit of the
members. Caste and community associations
among the skilled artisans developed, or were
revived, to take care of some of these roles.
MODERN SMALL-SCALE INDUSTRY
Modern small-scale industry is an under-
researched field. What we do know on the
subject can be organized into five points:
1. Period of growth: Modern small-scale
industry in the sense we use the term
was practically invisible before 1900. But
factories with little machinery and less than
a hundred workers each were conspicuous
in the 1930s. Their growth, in fact,
accelerated in the interwar period.
2. Industry groups: Modern small-scale
industry concentrated in textiles, food
drinktobacco, wood, and ceramics. Many
factories were seasonal.
3. Scale: The broad groups, fooddrink
tobacco and woodstoneglass, accounted
for about 20 per cent of factory employment
in 1931. Based on this fact and using
rough estimates, about one-third of factory
employment can be expected to have been
located in small factories with some usage of
machinery.19
4. Origin: A segment among them, such as
the powerloom factories, operated in old
products. They represented advanced forms
of traditional small-scale industry. Others
were of new origin in terms of capital and
labour, though not necessarily in market.
5. Location: The growth of modern small-
scale industry dispersed factories beyond
the main mill towns such as Calcutta, or
Bombay. Modern small-scale industry
clusters were located all over India.
Generally, they were located near raw
material sources. However, some of these
clusters could form near big cities. An
example is tanning in Dharavi, which is
now a part of Bombay. Another example is
engineering and metal-working firms such
as foundries in Howrah, near Calcutta.
 small-scale industry 179

One reason that such industries clustered
was the availability of cheap electric power.
Power was not yet widely diffused in the
1930s. Further, these new firms usually
sold products via marketing networks
that were urban. Leather was exported,
and therefore, benefited from being close
to a port. Sometimes their markets were
concentrated. For example, the engineering
firms supplied cast iron tools, parts and
consumer goods to urban users including
the government and the mills. Cotton gins
did business with the Bombay mills. Finally,
nearly every small firm used the railways
and many used the telegraph. In short,
while modern small-scale industry was
more dispersed than large-scale industry,
it retained an urban, sometimes a big-city,
bias.
Since many of these factories were seasonal,
and satisfied the official definition of a factory
imperfectly, they periodically went in and
out of factory statistics. Factory statistics are
a rather poor guide to the scale and growth
of such factories. Nevertheless, it is a good
guide to certain qualitative aspects, especially
location. Table 6.10 lists the major regional-
industrial clusters as seen from factory
statistics. Some of the districts that figure
in Table 6.10 later grew to become major
industrial agglomerations employing hundreds
of thousands of workers each. The industries
listed in the first column still form the core
activities in some of them. Some others,
however, diversified out of these roots.
In major regional histories, the growth of
modern small-scale industry in agriculturally
developed areas has been touched upon briefly.

Table 6.10 Regional Clusters of Factories other than Large Mills, c. 1939

Industry Districts of Major Concentration

Gins and presses Towns all over Khandesh and BombayDeccan*, Berar, BroachBaroda, Bellary,
Coimbatore
Rice and oil mills KrishnaGunturEast Godavari, Coimbatore, Madurai, Tanjore
Bidi Singhbhum, North Arcot, Malabar, NasikAhmadnagar, Guntur
Handloom** Sholapur, Malabar
Silk mills Surat, Bangalore
Saw mills Nagpur, Jabalpur, Malabar
Tannery North Arcot, Bombay suburbs
Shellac Manbhum (Purulia)
Tiles, kiln MalabarQuilonSouth Kanara, BarnalaBhatindaPatiala
Glass AgraFirozabad
Cashew and coir Quilon, Alleppey
Brass and aluminium East Godavari
Engineering workshops Krishna, LudhianaJullundur, KanpurLucknowMeerut, Howrah

Source: Reproduced from T. Roy, The Pattern of Industrial Growth in Interwar India, Journal of Indian School of Political
Economy, 6(3), 1994.
Notes: *Includes the cotton growing districts of the southern part of the Bombay Presidency, notably, Bijapur, Dharwar,
Belgaum, Sholapur, and Ahmadnagar.
**Handloom factories were widespread in the urban weaving complexes all over the country, but in Malabar and
Sholapur, they represented the principal organization in weaving.
180 economic history of india
Examples are, canal colonies in the Punjab,
Coastal Andhra, Upper Doab, Tamil Nadu, and
the sugarcane belt on the Nira canal system
in Bombay.20 C.J. Bakers work in particular is
important because it suggests two hypotheses
on this growth, which may have general validity.
First, in some regions, rich peasants started
factories. A combination of two factors led to
this. One was agricultural commercialization
in the last quarter of the nineteenth century.
In Punjab, coastal Andhra, Tamil Nadu, Nira
valley, and Khandesh, prosperity based on rice,
wheat, sugarcane and cotton induced many
farmers to set up cotton gins, sugar mills, rice
and oil mills. The other factor was a fall in the
relative return on land from the interwar period,
as agriculture became less profitable than
before. Second, the Great Depression led to a
re-allocation of rural savings. Like elsewhere in
the world, the depression of the 1930s brought
in a crisis of inadequate liquidity, as real debt
volumes increased and incomes fell. With the
crash of agricultural prices land lost its worth
as collateral. This forced liquidation of gold
and silver assets, and relocation of capital from
rural to urban sectors. Via banking, some of
this rural capital moved into industry. Both
these hypotheses are conjectural. But they are
supported by the fact that the major expansion
in small factories, at least in Tamil Nadu,
occurred in the 1930s and the 1940s.
Reviewing these hypotheses, Haruka
Yanagisawa points out that the growth of
such factories in Tamil Nadu began about
1910, well before agricultural prices became
depressed and the financial relocation effect
of the Depression could be felt. One major
source of the growth of such rural factories
was the increased demand for their products.
For example, the rice mills initially made
parboiled rice for export to Southeast Asia.
Increasingly, local consumers began to replace
the export market. Cheapness and better
quality of the parboiled rice, and consumption
of rice by people who formerly ate coarser
foodgrains were the major reasons. A similar
set of circumstances encouraged a growth in
factories engaged in groundnut oil extraction
and beedi making (see also Figure 6.2).
Who were the capitalists? James Berna
observed, concluding a survey of small and
medium industrial firms in Madras State
conducted shortly after Independence, that
only a minority of the entrepreneurs have had
trading background.21 Along with merchants,
he found artisans, white-collar workers, former
factory workers and engineers, and owners of
small-scale engineering firms in South India.
Unlike in large-scale industry, entrepreneurs
here were people without access to family
or community capital. They depended on
the partnership organization, especially
partnership between technical people and
moneyed people. However, as Berna notes
again, the partnership could become an
inherently unstable system in an environment
of capital shortage. Conflict between industrial
interest and financial interest was common
in partnership firms. Industrialists wanted to
reinvest or put in money, financiers tended to
be conservative about risks, wanted quick and
high returns, or take out money.
CONCLUSION
Far from destroying or weakening the
handicrafts at large, commercialization
polarized and differentiated them. It supplied
new opportunities to some actors, but
proved too adverse a change for others. Thus
commercialization transformed traditional
industry, and created modern small-scale
industry in colonial India.
The two key features of the change were,
increasing scope for commercial and industrial
capital in the business, and increasing use of
 small-scale industry 181

Figure 6.2 An Oil Mill in Tamil Nadu, c. 1870.

A bullock-powered wooden grinder extracts oil, possibly coconut oil. Although located in a village setting, the scale of
operation suggests that it was a commercially run business rather than a household enterprise. With beginnings such
as this, some of the mills could grow much larger and were included in the official list of small factories in the early
twentieth century.
British Library

wage labour in place of family labour. The
labour market emerged slowly, out of two
traditional institutions, the family and master
apprenticeship. The decay in these institutions
in the long run owed to many factors, such
as migration, new entry in capital and labour,
and a reduced role for craftsmanship. Changes
in the context in which children and women
were employed in small-scale industry can be
understood better in terms of this framework
of a shift from households and apprenticeships
to a casual labour market where adult males
had a better chance of survival.
Large-scale industry played a transformative
role, far exceeding what its small share in
employment suggests. It is to this role that we
now turn.
NOTES
1. Today it applies to any unit employing 10 or more
workers and using electricity or 20 or more workers and
not using electricity.
2. A.K. Bagchi, Deindustrialization in India in the
Nineteenth Century: Some Theoretical Implications,
Journal of Development Studies, 12(2), 1976, pp. 13564;
Irfan Habib, Colonialization of the Indian Economy,
17571900, Social Scientist, 3(8), 1975, pp. 2353; and
Studying a Colonial EconomyWithout Perceiving
182 economic history of india
Colonialism, Modern Asian Studies (MAS), 19(3), 1985,
pp. 35581; S.J. Patel, Agricultural Labourers in Modern
India and Pakistan, Bombay: Current Books, 1952.
3. Bagchi, Deindustrialization in India; Michael J.
Twomey, Employment in Nineteenth Century Indian
Textiles, Explorations in Economic History, 20(1), 1983,
pp. 3757; Amalendu Guha, The Decline of Indias Cotton
Handicrafts: 18001905, A Quantitative Macro-Study,
Calcutta: Centre for Studies in Social Sciences, 1989.
4. Marika Vicziany, The De-industrialisation of
India in the Nineteenth Century: A Methodological
Critique of Amiya Kumar Bagchi, Indian Economic and
Social History Review (IESHR), 16(2), 1979, pp. 10546.
5. Morris D. Morris, Towards a Reinterpretation of
Nineteenth Century Indian Economic History, Journal of
Economic History (JEH), 23(4), 1963, pp. 60718.
6. See also S. Sivasubramonian, The National Income
of India in the Twentieth Century, New Delhi: Oxford
University Press, 2000; Tirthankar Roy, Globalisation,
Factor Prices and Poverty in Colonial India, Australian
Economic History Review, 47(1), 2007, pp. 7394.
7. On this point, see India, Fact-Finding Committee
(Handlooms and Mills), Delhi: Government Press, 1942,
p. 15.
8. Maxine Berg, Pat Hudson, and Michael
Sonenscher (eds), Manufacture in Town and Country
before the Factory, Cambridge: Cambridge University
Press, 1983; Jan de Vries, The Industrial Revolution
and the Industrious Revolution, JEH, 54(2), 1994, pp.
24970; Osamu Saito, Pre-Modern Economic Growth
Revisited: Japan and the West, London School of
Economics Working Paper, available at http://eprints.lse.
ac.uk/22475/1/wp16.pdf.
9. S. Sivasubramonian, National Income of India.
10. Sivasubramonian, National Income of India, p.
282.
11. Tirthankar Roy, Artisans and Industrialization:
Indian Weaving in the Twentieth Century, New Delhi:
Oxford University Press, 1993, chapter 1.
12. Tirthankar Roy, Traditional Industry in the
Economy of Colonial India, Cambridge: Cambridge
University Press, 1999, chapter 3; Tirthankar Roy,
Acceptance of Innovations in Early Twentieth Century
Indian Weaving, Economic History Review (EHR), 55(3),
2002, pp. 50732.
13. Cited in A.C. Chatterjee, Notes on Industries in the
United Provinces, Allahabad: Government Press, 1908.
14. A caution, the denominator is generally believed
to understate participation rates.
15. Tirthankar Roy, Knowledge and Divergence
from the Perspective of Early Modern India, Journal of
Global History, 3(3), 2008, pp. 36187.
16. Tirthankar Roy, Changes in Wool Production
and Usage in Colonial India, MAS, 37(2), 2003, pp.
25786.
17. See Manjit Singh, The Political Economy of
Unorganised Industry: A Study of the Labour Process, New
Delhi: Sage Publications, 1991.
18 .
N.G. Ranga, Economics of Handloom,
Bombay: Taraporevala, 1930, p. 110.
19. This estimate qualifies the earlier equation
between registered factory and large-scale industry.
The equation is convenient for reading employment data
but not very realistic. A large part of the factories were
small-scale.
20. Ian Stone, Canal Irrigation in British India,
Cambridge: Cambridge University Press, 1984, chapter
8; A. Satyanarayana, Andhra Peasants under British Rule:
Agrarian Relations and the Rural Economy 19001940,
Delhi: Manohar Publishers, 1990, especially chapter 4;
D.W. Attwood, Raising Cane: The Political Economy of
Sugar in Western India, Boulder: Westview Press, 1992;
Imran Ali, The Punjab Under Imperialism, 1885-1947,
Princeton: Princeton University Press, 1988; Christopher
J. Baker, An Indian Rural Economy, 18801955: The
Tamilnad Countryside, New York: Oxford University
Press, 1984, chapter 3 (see also reading suggestions);
H. Yanagisawa, The Growth of Rural Industries in
Tamilnadu and their Domestic Markets, 19001950,
in T. Mizushima and H. Yanagisawa (eds), History
and Society in South India, Tokyo: Tokyo University of
Foreign Studies, 1996 (see also reading suggestions).
21. James Berna, Patterns of Entrepreneurship in
South India, Economic Development and Cultural Change,
7(3), 1959, pp. 34362.
7
Large-Scale Industry
T he large factory, machinery, and
government regulation of industrial
workthe three defining features of
large-scale industrywere of new origin in
nineteenth century India. Between 1860 and
1940, employment in factories increased from
less than 100,000 to two million, at an average
annual rate of 4 per cent. The largest extent of
the growth had occurred between 1870 and
1921 (employment growth rate at 5.3 per cent
per year), with World War I providing a strong
boost. For a comparison, employment in
manufacturing in Britain grew at the rate of 1.1
per cent between 1856 and 1937.1 Although
in 1940 large-scale industry provided a rather
small proportion of industrial employment,
its contribution to GDP was significant, its
shares in employment and income were rising,
and the spillovers that it generated upon
technological change and urbanization were
large.
The post-colonial pattern of industrial
change depended on the foundation laid by
the rise of the factories. In the port cities such
as Calcutta, Bombay, and Madras, there was
political and institutional consolidation of
industrialist families. In turn, these businesses
constructed schools, colleges, universities,
technical-training institutions, clubs and
societies, charities, hospitals, and public
utilities such as electric-power generation.
Big business sponsored some of the more
stable banks and insurance companies.
Factories facilitated labour markets that
were more cosmopolitan and more diverse
in skill content than those in artisanal towns
and administrative centres. In these and
other ways, the industrialization that began
in colonial India acted as a catalyst in the
formation of industrial districts, which
consistently played a role in successive waves
of capitalist enterprise in the post-colonial
period. The tendency of the new generation
of manufacturing industries and highly skilled
services that fared so well in post-liberalization
India to concentrate in the cities, owed to the
historical lead that these cities had established
in colonial times.
The chapter is divided into nine sections:
statistical outline, stages of growth, major
184 economic history of india
industries, labour, capital, entrepreneurship,
management, technology, and the princely
states, in that order. In a concluding section,
general issues about the growth and
significance of large-scale industry will be
discussed.
STATISTICAL OUTLINE
Taking the officially registered factories to
represent large-scale industry, their share in
the industrial employment of British India
increased from near zero in 1850, to 5 per cent
in 1891, to 11 in 1938. The share of large-scale
industry in industrial GDP increased from 15
per cent in 1900 to 45 in 1947. The princely
states saw a later growth of factories. From
a small base, employment increased rapidly
between 1921 and 1938 (Table 7.1).
Employment was dominated by male
workers throughout. Womens participation
in industrial work declined between 1881 and
1971 (Chapter 6). Inside both the cotton and
the jute mills, womens participation fell in the
first half of the twentieth century. However,
there was no significant change in participation
in total factory employment (Table 7.1),
suggesting that in smaller-sized factories there
was an increase in womens participation. The
most important change in the composition of
factory labour was a fall in the employment
of children. The fall was rapid in 192836
Table 7.1 Employment in Factories, 18911938
Total for British
India
1891 316,815
1901 468,956
1921 1,266,395
1938 1,737,755
Source: Statistical Abstracts for British India, Calcutta, various years.
and was behind the implementation of some
provisions of the Factories Act, as well as
recommendations of the Royal Commission
on Labour in India (1931). Children were
usually replaced by adult men.
Factory employment in the colonial period
was dominated by the textile industry (Table
7.2). Textiles consisted of cotton and jute
spinning and weaving mills, cotton gins and
jute presses that were primarily seasonal
activities, and a few isolated large firms in
wool and silk spinning and weaving. Next in
importance was processing of agricultural
material. This group included relatively smaller
firms like rice mills, oil mills, sugar refining,
and tobacco products. The combined share
of chemicals, metals and machinery, that is,
capital and intermediate goods, was small.
Metals and machinery formed a diverse group
that consisted of small repair shops as well as
iron and steel manufacturing.
There was high regional concentration
of factory employment in colonial India.
Bombay and Bengal provinces, indeed the
cities of Bombay and Calcutta, contained the
bulk of factory employment (Table 7.3). The
attraction of these cities derived from their
position as transportation hubs, market for
labour, capital, and services, and as sites of
European settlement. They were, moreover,
located near lands engaged in cotton and jute
cultivation. In the interwar period, the cotton
Percentage in British India of Total for the
Princely States
Men Women Children
80.2 13.8 6.0 n.a.
79.5 14.6 5.9 n.a.
79.8 14.8 5.4 129,968
85.3 14.1 0.6 299,003
 large-scale industry 185

industry had spread out and new industries states contributed to the dispersion of industry
had expanded. These tendencies reduced in the late interwar period (Table 7.4). British
the share of the two provinces in factory India, however, had a higher share of large-
employment. Industrialization in the princely scale industry in industrial employment.

Table 7.2 Industrial Composition, 1921

(percentage of total employment)

Share in Large-scale Industry Share in Industry

Textiles 41.6 25.7
Food, drink, tobacco 7.2 10.5
Hides and skins 0.9 2.0
Metals and machinery 4.6 11.4
Chemicals 2.6 3.7
Wood, stone, glass 7.1 10.1
Total including others 100.0 100.0
Source: See under Table 7.1.

Table 7.3 Location of Large-scale Industry, 191131

Share of Province/State in Factory Share of Factory in Industrial

Employment (%) Employment of Province/State (%)

1911 1931 1911 1931

Madras 7.5 8.2 2.4 5.3
Bombay 29.9 23.9 21.6 36.5
Bengal 36.8 27.9 19.2 32.8
United Provinces 6.3 6.3 1.8 3.3
Punjab 3.8 2.8 1.9 2.7
Bihar & Orissa 2.7 4.0 1.8 4.8
Central Provinces and Berar 5.4 3.8 5.9 8.3
Hyderabad n.a. 1.9 n.a. 3.8
Mysore n.a. 1.5 n.a. 8.3
Total 100.0 100.0 5.0 10.4
Source: See under Table 7.1.

Table 7.4 Pattern of Industrialization in British India and the Princely States, 1931

Share in Industrial Share in Total Share of Industry in Share of Factory in

Employment (%) Employment (%) Total Employment Industrial
(%) Employment (%)
British India 77.1 75.8 10.4 10.8
Indian States 22.9 24.2 10.3 4.7
Total 100.0 100.0 10.4 9.3
Source: See under Table 7.1.
Note: Factory data for states are not available for 1911 or earlier.
186 economic history of india
British India excluding Bombay and Bengal,
and the princely states, were somewhat similar
in the structure of industrial employment.
STAGES OF INDUSTRIALIZATION
Growth of large-scale industry can be
broken up into four stages, in order to better
distinguish between the principal sources of
growth. The stages were: (a) 1850s to 1914
or the prewar period, (b) the World War I,
(c) 192039 or the interwar period, and (d)
World War II.
The Prewar Period
India became a colony of Britain in 1858,
formally heralding a regime when the British
Crown stood guarantee for the security of
property in India. In the decade preceding
this event, the railways and the telegraph
had begun to revolutionize systems of
communication within the region and beyond.
Ten years after this event, the Suez Canal
greatly reduced the shipping distance between
Britain and India. Spurred by the reduction
in transaction and transportation costs, new
forms of manufacturing enterprise began to
grow from the 1860s.
The capital came partly from foreign
investment and partly from domestic
mercantile accumulation. The growth of
Indias trade with China after the Companys
monopoly in China trade ended (18345) was
a significant episode in this respect. Bombay
and Calcutta benefited from the exceptional
growth of foreign trade in the next 20 years.
These were the cities where factories first
appeared, building on trading profits and the
enterprise of the communities who dominated
foreign trade. A key episode in the transition
from trade to industry was the American
civil war (18615) which cut-off supplies of
American cotton to Britains textile industry.
Indian cotton was suddenly in great demand.
The boom in cotton prices created the profits,
a part of which eventually found its way to a
cotton mill industry in Western India. A tea
mania of a similar nature occurred about the
same time in Calcutta. And a gold mania took
place in Madras. These too ended in a crash
that finished many small companies. But in
all three cases, the companies that had been
formed quickly had stimulated the local stock
exchanges and popularized the notion of joint-
stock companies.
The principal industries in this period
were cotton spinning and weaving, and jute
spinning and weaving, the former mainly
based in Bombay and Ahmedabad, and the
latter in Calcutta.
World War I
The war diverted the resources of the
belligerent nations into producing war supplies.
India was not in war, but Britain was. Britains
engagement in the war had two contradictory
effects on India. On the one hand, demand for
goods made in India and now in worldwide
shortage increased. But on the other hand,
machinery, raw materials, spares, and chemicals,
earlier imported by Indian industry from Britain
and Germany, suddenly stopped. Thus, while
there was excess demand for Indian goods, there
were also supply bottlenecks. Some industries
suffered from this situation. Some others on
the whole gained. An example of industries
that were badly affected by supply constraints
is handloom weaving, which relied on English
yarn. Examples of industries that gained are
steel, jute and cotton mills. By the third or
fourth year of the war, there was a shortage-
induced inflation. The inflation benefited the
existing producers. The supply constraints
eased somewhat as the war went on.

By the end of the war, industrial production
had expanded, and conditions were ripe for the
start of new industries and diversification by old
industries.
The Interwar Period
The war, having shown the usefulness of India
as a manufacturing base, induced a change in
policy. Until the war, the government followed
a policy of non-intervention in the promotion
of industries. Thus, purchase of industrial
goods for defence, railways or administrative
use was earlier heavily dependent on Britain.
This dependence had created sudden
shortages of these goods in India during the
war. The policy also justified a criticism that
the government was indifferent even hostile
to Indian entrepreneurship. Such a view was
voiced every year since 1905 in a forum called
the Indian Industrial Conference. After the
war, the government began to look towards
local sources, and talked about promoting such
sources.
The result of the new outlook was the
Fiscal Autonomy Convention (1919), which
formally accepted Indias right to pursue an
independent tariff policy. Fiscal autonomy
was effectively respected in that the interwar
period saw fewer interventions by the
Secretaries of State in Indian economic affairs.
Nevertheless, fiscal autonomy was also diluted
somewhat by the desire to protect British
goods against non-British goods in the Indian
market, a desire that took shape in the Imperial
Preference policy. Three further events that
represented the shift in attitude were the
establishment of the Indian Munitions Board
(1918), the Indian Industrial Commission
(191618), and the Indian Fiscal Commission
(19212). The Fiscal Commission sanctioned
the use of protective tariffs for industrial
promotion, provided the protected industry
large-scale industry 187
had natural advantages that made it capable
of eventually competing with foreign goods
without protection. The Munitions Board
sanctioned domestic sourcing of government
purchases. The Industrial Commission
stressed the governments responsibility
in matters of technical and scientific
advancement. It listed the industries that the
government could assist directly.
Worsening public finances restrained
the governments capacity to provide direct
assistance of any kind. After 1921, the main
responsibility for industrial development
passed on to the ministers in the provinces,
and the provinces were even more financially
constrained. Paradoxically, worsening finances
also increased the governments dependence
on customs revenues and made tariffs an
attractive option. Between 1923 and 1939, 51
enquiries were made about the suitability of
demand for protective tariffs. In 11 of these
cases, tariffs were raised. These included
salt, heavy chemicals, magnesium chloride,
sericulture, plywood chests, gold thread, iron
and steel, cotton textiles, sugar, paper and
paper pulp, and matches.
Thereafter, more factories in sugar, iron and
steel, cement, matches, paper, and woollen
textiles were established, and the existing ones
expanded. Much of this growth occurred in
cities other than Bombay, or Calcutta. The
spatial spread owed to the location of the
new resources being utilized in this phase,
sugarcane or wool, for example. It also owed
to the fact that the reach of the railways and
electricity had extended into the interior.
One of the more important attractions of
the up-country was non-unionized labour.
New factories came up in or near cities
such as Coimbatore, Kanpur, Madras, and
Jamshedpur.
Within older industries such as the cotton
and jute mills, and the older cities of Calcutta
188 economic history of india
and Bombay, the situation was becoming
more difficult. Competition in textiles and
steel was keener in this period than before.
In textiles, competition came from Japan and
from the many new mills that were started
in towns far away from Bombay. In steel,
worldwide capacity building progressed faster
than new demand. In jute, Indian capacity
grew faster than world demand. The result in
each case was low or fluctuating profits that
combined with adverse factors specific to these
industries. The demand for tariff protection
arose partly from this crisis. But tariffs
alone could not solve the problem. Some of
the industries had to make innovations in
technology and management.
Between 1925 and 1935 the world was in
mild or deep depression. Capacity in some
industries worldwide had expanded too fast.
The list included steel, paper, sugar, and
cement. Indian industry faced both cheap
imports and falling world prices. The Indian
nationalists convincingly argued that the rupee
was an overvalued currency in these years,
which made competitive imports cheaper
than they ought to have been (especially
with respect to Japan). The Great Depression
(192930) hurt the businesses that were
mainly selling abroad, such as jute. Other key
Indian industries affected by excess capacity in
the world were saved by tariff protection in the
1920s.
If we look at industry overall, the
Depression did not have a deep impact. Real
income from large-scale industry hardly
changed in the depression years. Trends in
wages in these years suggest that money wages
were quite flexible. Thus, one reason behind
the severity of the Depression and one on
which J.M. Keynes later built his theory of
short-term fluctuation, rigidity of money
wages, did not hold for Indian industry by and
large. And yet, this very factor drove a wedge
between old cities with growing trade union
movements and the newly industrializing
towns where trade unions were weaker and
the job market was limited. Renegotiating
wage and working conditions were becoming
difficult and strongly resisted by workers in
Bombay and Calcutta. The 1930s, via the
labour market and labour institutions, further
encouraged the spread of factories, and
deepened the difficulties of the cities where
the first generation factories had come up.
The Depression also left an impact on
financial markets. As prices fell, debtors
experienced an increased real burden of debt.
This situation saw a great deal of transfer
of mortgaged assets and sale of assets that
otherwise would not have come to the market.
The large-scale liquidation of gold assets, in
particular, seemingly stimulated credit.
World War II
Qualitatively, the effects of World War II were
similar to those of World War I. Again, excess
demand developed and prices soared. Again,
supply constraints developed. But Indian
industry in 1939 was more diversified and
better equipped to diversify than in 1914.
Thus, real growth of industrial incomes was
greater and diversification into new industry
wider during World War II. And yet, World
War II was a more stressful episode on the
whole. In the winter of 1942, India became the
eastern front of the war. Unlike in 1914, British
India, especially Bengal, was now a theatre of
war. Anticipating a long engagement, large-
scale requisition of rice began. Combined with
harvest failures, the situation led to a large rise
in the price of food in eastern India. Meeting
the needs of its workforce became a serious
challenge for the plantations and industry.

Throughout these four periods, two
conditions faced by large-scale industry
changed slowly. First, it continued to
depend on the import of capital goods
and manufactured inputs such as electrical
machinery, transport equipment, and heavy
and fine chemicals. Second, it continued to
depend on foreign technicians. They were paid
about twice the salary of an Indian available
for the same job. This dependence weakened
over time. But it weakened at different speeds
across major industries. Significant change
in both these conditions came only after
Independence. Perhaps the most decisive
Indianization of the supervisory staff
occurred in the cotton mills. Between the
first origins of cotton mills in Bombay, and
1925, the percentage of Europeans among the
supervisory staff decreased from 100 per cent
to less than 30.
MAJOR INDUSTRIES
Cotton Mills
The first steam-powered factory making
cotton yarn appeared near Calcutta in 1817 or
1818. This venture, like a few others in western
and southern India, was set up by a European.
But these firms did not succeed. In 1854, a
Parsi merchant of Bombay, C.N. Davar, started
the first successful cotton mill. The idea
attracted other merchants of the city. Many
of them were already engaged in cotton and
textile trade. By 1865, there were 10 mills, the
majority in Bombay. In the next few years, a
boom and a crash shook up cotton export from
western India. When the dust settled, a furious
expansion of the mill industry began. By 1880,
there were 58 mills with an employment of
40,000. With a few exceptions, these mills
and nearly 80 per cent of the workers were
large-scale industry 189
in Bombay and Ahmedabad. By 1914, the
number of mills had risen to 271, and average
daily employment to 260,000. By then, the
share of the two cities in textile employment
had dropped to 60 per cent. Any small town
that had a cotton trade, a railway connection,
a potential pool of cheap and non-unionized
migrant labour, and a handloom industry
became an attractive location for a spinning
mill. Using these strengths Kanpur, Madurai,
Coimbatore, Sholapur, Nagpur, and a cluster of
cotton trading towns in the Deccan developed
cotton mills.
Between 1870 and 1914, cotton mills were
mainly selling yarn to handloom weavers
in India and China. In both these markets,
they successfully competed with British yarn
in the coarser varieties. But they found it
difficult to compete with the latter in the finer
varieties. In both these markets, Indian yarn
completed a process that had begun from the
1820s, gradual destruction of hand-spinning
of cotton. Later in this period the situation
changed as the mills in Japan took over the
China market.
The loss of the China market and keener
competition at home forced the mills of
Bombay to make changes in the interwar
period. First, they started weaving their own
yarn more than before. The substitution of
British cloth and handloom cloth by Indian
mill-made cloth, therefore, accelerated.
Second, they tried to spin and weave finer
yarn. Third, they tried to save on costs of
labour. This last change intensified industrial
unrest. For some mills that were already
poorly managed, these changes were too little
and came too late. The interwar period saw
unemployment, labour unrest, technical, and
managerial reorganization, demand for tariffs,
intensification of nationalist sentiments
among millowners, and the beginning of
190 economic history of india
bankruptcy in many of Bombays cotton
mills.
Jute Mills
Jute is a natural fibre grown mainly in
southern West Bengal and Bangladesh. It is
used as a raw material for sacking cloth. The
demand for sacks increased enormously
in the nineteenth century in keeping with
the volume of international commodity
trade. Until the 1870s, Bengal raw jute was
processed into sacking outside India, mainly
in Dundee in Britain, and somewhat later in
Germany. But already by then, mechanized
jute spinning and weaving had started near
Calcutta. George Aclands mill of 1855 was the
pioneer. In a short time, the Indian industry
grew to become a virtual monopoly in the
world. As in the cotton mills, the first 15 years
of the industry faced unstable conditions and
slow growth. After 1870 expansion was rapid.
Between 1869 and 1913, the number of mills
increased from 564, and employment from
50,00010,000 to 215,000. Until World War I,
the industry was entirely owned and managed
by Europeans, which made Calcuttas business
environment quite different from that of
Bombay.
The industry ran into rough weather in
the interwar period. The world demand for
sacking was growing less rapidly than in the
prewar period or during the war. Internally,
the industry was trying unsuccessfully to set
up a cartel. India being a virtual monopoly,
the jute industry could ask for high prices in
periods of excess demand and get away with
it. But such tactics attracted entry of firms that
hoped to gain more market by not joining the
cartel and keeping prices low. Old firms tried
to devise rules to restrict their output, but
failed to cooperate with each other. The result
was excess production, unstable profits, and
increased competition.
The situation in jute was not unique. Many
industries worldwide at this time, including tea
and sugar in India, tried to deal with depressed
markets by forming cartels and cutting
production rather than by becoming more
efficient producers and cutting costs. Where
the industry consisted of many types of firms,
old and new, small and large, such attempts
tended to break down. Such moves work in
principle when the members of a cartel have
identical interests, all incumbent and potential
firms are members of the cartel, the number
of members is small enough for there to be
credible enforcement systems, and when
expulsion from the cartel might hurt anyone
who does not play by the rules. Such moves
fail when the club is too large, too diverse,
and excludes some participants. Agreements
break down, confirming the prediction of
Mancur Olson that large and diverse coalitions
entail free riding risks.2 Cartels that form
out of ethnic ties carry an additional risk. By
definition, they exclude or fail to secure the
cooperation of other ethnic clubs. One ethnic
cartel, then, has every interest to prey upon
the restrictionist moves of another ethnic
cartel. This is what happened in Calcutta in the
1930s. To quote one author who has studied
the failure of the jute cartel, the breakdown of
collusion in jute was primarily the result of the
presence of a sizeable fringe whose interests
diverged from those of the cartel members.3
Members of the fringe sensed a realistic
chance of growing faster than those who
stayed in the club. In jute, the fringe consisted
of small Indian entrepreneurs whereas the
club consisted of the more established and
organized British capitalists. Eventually, the
failure of the jute cartel invited the government
of Bengal to impose production limits. But,

as in Bombay, a large part of the industry was
doomed already for having delayed technical
improvements.
Other Industries
Outside cotton and jute mills, the pre-war
history of large-scale industry is a history of
a few isolated firms. In the late nineteenth
century, two large woollen mills were started
in Kanpur and Punjab, a match unit was set
up in south India, a large paper mill started
near Calcutta, and two leather manufacturing
firms were started in Kanpur. These ventures
had two things in common. They were all
European firms, and they were all dependent
on government demand or demand from the
European residents. The demand being so
narrow, there was no scope in these industries
for more such firms.
The most outstanding industrial
achievement of the pre-war era was the Tata
Iron and Steel Company.4 It began as a firm in
1907, and started production from 1911. Tata
Steel owed its existence first of all to its founder
J.N. Tatas persistence and vision. The firm of
the Tatas was established in textiles and had a
considerable brand name in Bombay. The Tatas
were also the largest steel importer into India
and knew the trade well enough to be confident
of being able to produce steel at a lower cost.
The firm was preceded by almost 20 years of
exploration and research into the supply of key
raw materials in the region of India where it was
finally established. These raw materials were
coal, iron, limestone, manganese, and water.
Tata Steel, however, shared with the other large
factories in this period their dependence on
government demand. The long gestation was
not deliberately planned. It was partly a result
of political indifference and adverse world
market conditions. Many factors were at work
large-scale industry 191
behind the potential success of an integrated
steel factoryfrom railways, township building,
assurance on purchase, to quality controland
some of these required repeated working out
before the plan could be implemented.
The war gave a boost to any industry that
had a war-related usage and that did not
rely heavily on imported raw material. Steel,
cotton, paper, and jute did exceptionally well,
though in steel the government fixed prices
during the war. The manufacture of Portland
cement had begun. New investments had been
planned during the war both in old and in
new industries, and these began to take shape
after 1920. Tata Steel carried out its first major
expansion between 1925 and 1935. Several
new firms in cement manufacture were started
during 192035. The Titaghur paper mill was
joined by another large European firm.
All these industries faced falling prices
from the late 1920s. They met this situation
in different ways. In cement, there was an
amalgamation of smaller firms to create
the Associated Cement Companies with
better control on prices. The pressure on the
government to grant tariff protection became
strong. In 1923, an influx of cheap Belgian
steel exposed Tata steel to hardship, even the
prospect of bankruptcy. Thanks to its valuable
contribution during the War, Tata Steel had
goodwill among the administrators, and
despite opposition, the proposal to protect
the industry was passed in 1924. Once the
government committed itself to protection, it
remained committed. While each successive
protection order was time bound, a series of
new enquiries and orders extended protection
to both steel and cotton textiles through the
interwar period. By 1937, Tata Steel had
weathered the long depression successfully.
The paper industry also received protection.
But in this case, protective tariffs alone did not
192 economic history of india
help, for India used raw materials such as sabai
grass or straw that had become relatively costly
after Europe switched to the cheaper material,
wood pulp. The Indian industry, therefore, had
to progressively shift to bamboo pulp. It had to
adapt not only in its methods of production,
but also in the location of the factories, which
tended to shift near sources of bamboo. Tariffs
were also given to manufacture of refined
sugar. This was in response to a worldwide fall
in cane prices that threatened to ruin Indian
cane growers unless a local sugar industry grew
to use their product. A local industry did grow
between 1919 and 1935, so rapidly that soon
there was excess capacity. The older firms in
the industry coped with excess capacity in the
same way that jute mills hoped to deal with
theirs. That is, they formed cartels and sought
government help to protect the cartel from the
entry of new firms. They, however, succeeded
in this venture to a limited extent.
LABOUR
Labour Supply: Analytical Models
Labour was available cheap. There is no
evidence that any industry faced a problem of
inadequate supply of labour in the long run.
And yet, gathering a large number together
in one worksite, and making peasants and
artisans adapt to the factory rhythm of
work, posed enormous challenges in the
middle of the nineteenth century. How was
this huge shift effected? Was it effected by
means of market (wage) incentives, political
intervention, or institutional changes?
The economic theory of labour supply places
emphasis on market incentives, and predicts
that labour supply relates positively to real wage.
In an extension of this rational choice model,
W. Arthur Lewis proposed that in a traditional
society with underemployed surplus labour,
labour should be available for urban-industrial
work at low wages, which should remain steady
until surplus labour ran out.5 The asking wage
needed to be only slightly above the already
low average output in the traditional sector.
In this way, surplus labour could be shown to
create prospects of extraordinary profits and
high rates of investment in the urban sector, in
other words, an initial unemployment was a
potential driver of rapid industrialization. Since
this model was first developed in the 1950s, a
variety of dual economy theories modelled
ruralurban labour transfer with reference to
wage and the probability of getting a job in the
urban labour market. The existence of a rural
non-farm sector and an urban informal sector
complicated the story, but did not necessitate
major changes in the essential structure of the
rational choice model of labour supply in the
presence of disguised unemployment.
Contradicting the predictions of the model,
in historical time, labour supply was rarely
an automatic response to wages. Information
about jobs and working conditions were often
scarce. There were institutional barriers to
leaving the countryside (such as serfdom or
commune obligations in late imperial Russia,
caste in India). And workers in traditional
sectors had other commitments and priorities.
The supposedly positive response to wages
cannot be taken for granted but needs to
be explained. From within mainstream
economics, therefore, the rational choice
model is exposed to the criticism that it
ignores the institutional setting in which
labourers make decisions. To cite Stanley
Engerman, the problem faced in earlier ..
times [was] to find a mechanism to shift from
a backward-bending to a forward-sloping
labor supply curve, a problem that demands
attention to those institutions that influenced

or determined the nature and limits of
collective behavior.6
The rational choice model is exposed also
to a possible Marxist critique that it does
not adequately explain how surplus labour
is created in the first place. Frederick Engels
history of the English working class answered
this question by suggesting that the Industrial
Revolution destroyed the handicrafts, and
polarized the old middle classes into capitalists
in possession of factories and machinery, and
workers dispossessed of property.7 By contrast,
E.P. Thompson, a new left social historian,
presented a narrative of the formation of the
English working class, in which the artisans
and the workers appeared less as victims
of circumstances.8 Thompson showed that
the English manufacturing workers tried by
various means to control and reshape their
situation and in the process developed a class
consciousness.
Labour history scholarship in India, to
a large extent, is a product of this neo-Left
discourse on proletarianization and class
consciousness. Two quite distinct strands in
the historiography of labour in India can be
identified, one nearer the orthodox Marxist or
Engels position, describing the larger forces
that led to the formation of a proletariat;
and the other a Thompsonian one, which is
interested rather more in how the processes of
class formation and class consciousness were
shaped by available choices, acts of resistance,
and the effect of Indian traditions. For
example, Dipesh Chakrabarty suggests that
social and ethnic divisions among the workers
were too deep for them to develop a class
consciousness. Other writers propose that
workers adapted to an alien environment by
making use of notions of friendship and social
connection that they brought from their places
of origin.9 Much of this discourse on identity
large-scale industry 193
and class is not very relevant for the economic
historian.
Within the orthodox tradition, scholars
who hold that the formation of a labour
surplus owed to an economic dislocation
caused by impoverishment of the peasantry
or unemployment among artisans, hold
colonialism and globalization indirectly
responsible for disguised and open
unemployment. The Indian story, in other
words, borrows from the universal Marxist
story of a proletariat formation, with some
unique Indian flavours added to it. In the
standard account, migrants and other workers
are not able to choose in the way neo-classical
and surplus-model theories expect.10 The
workers were forced to migrate because of
a variety of adversities in agriculture and
handicrafts. New property rights in land,
decline of the handicrafts, and high risks
associated with grain exports impoverished
the peasantry and the artisans, and made them
more dependent on wage labour. Draconian
labour laws that made breach of indenture
contract a criminal offence were instituted
to hold labour at the worksite even when it
was not in the economic self-interest of the
worker to remain in the modern sector. Labour
contractors and agents painted rosy pictures
of life in the cities and the plantations, and
duped workers into a contract that was against
their interest. In this way, political means and
adverse circumstances pushed unemployed
workers into modern jobs.11
At first glance, such a position would seem
to be a cogent one. During the nineteenth
century, older and newer occupations saw
little wage disparity between them. Why were
so many people moving in search of work,
then? Dislocation of livelihoods together
with coercion, rather than incentives and
voluntary choices, must have been responsible.
194 economic history of india
Upon closer investigation, the case for the
neo-Marxist story does not appear to be very
strong. Those who moved from handicrafts
and agriculture towards mills and plantations
were predominantly men and not women. The
neo-Marxist story does not account for the
gender angle at all. Those who moved from
peasant agriculture to factories tended to be
the better off land-holding segments of the
rural population, rather than the poorer and
most vulnerable agricultural workers. Once
again, this fact is not consistent with the neo-
Marxist story. If indeed artisans were pushed
by poverty into mill work, we would expect
to see artisans in the factory setting to be the
poorest of all workers. In fact, skilled artisans
formed a labour aristocracy among the textile
mill workers. They moved because their skills
were valued, not because they had little option
elsewhere.
A balanced account of labour supply should
incorporate elements of rational choice.
Choices did exist. We see these choices, for
example, in the decision of families to allocate
men to factories and women to other pursuits.
The balancing of rural work and urban work
also represented the existence of a choice.
Although wage rates in industry were
initially low, wage incentives were not absent.
However, to appreciate how wage incentives
could work, we need to also consider the
institutional set-up within which labour
time allocation took place. The Indian
factory workforce consisted predominantly
of peasants and, only marginally, artisans.
The seasonality of monsoon agriculture
imposed long periods of idleness on peasant
households. Urban jobs, even when these
offered only slightly higher wage rates, allowed
peasants to utilize their idle time better,
and thus enabled them to increase family
earnings. City work was not a total break from,
nor a clear alternative to, rural work. Such
migrations can be seen as a diversification in
the portfolio of occupations for the working
family as a whole. The purpose could be to
increase family incomes, reduce risks, and
retain a hold in the rural economy.
Peasant households, however, responded
to new income earning opportunities by
allocating the labour of men to these jobs,
whereas the women stayed back to look
after the farm. The practice of early marriage
pushed a disproportionate number of rural
women into agricultural wage labour. They
did join factory labour, but only when their
husbands worked in another department of the
same mill, and neighbours and older siblings
were available to look after young children.
Factory women in interwar India were nearly
all married.12 The majority of those women
who remained behind reported themselves to
the census as agricultural workers.
By the interwar period, the labour supply
function took on a more conventional
shape. By the 1920s, average mill wages were
considerably higher than wages everywhere
else. The disparity was significant in the
case of the pioneering mill towns. These
towns attracted a large number of single male
migrants who stood at the mill gates seeking
casual work, when such work was becoming
harder to come by. Population growth had
increased labour supply, and created a real
surplus labour reserve in the factory towns.
Despite the attraction of a more efficient
time allocation in the nineteenth century,
there are reports that mills (and mines
and plantations) often faced difficulty in
getting workers, supervising them, and
communicating with them. These vital
tasks were routinely relegated to agents and
intermediaries variously called jobbers,
sardars, and kanganies.13

Institutions of Labour SupplyThe
Contractor
Most large-scale enterprises in nineteenth
century India did not recruit workers directly,
but recruited through labour contractors.
Further, almost from their mid-nineteenth
century beginning, or possibly from a
little later, large-scale employers such as
factories, plantations and ports left a great
deal of supervision and training to these
intermediaries. As against these useful services,
the intermediary received a crucial privilege,
the freedom to hire whoever he/she wanted
to hire, and the freedom to fire workers under
him/her with only the minimum formal
consent of the management, or often not even
that.
Economic theory and economic history
recognize that hiring a labour contractor can
be a rational employment decision in certain
contexts. For example, when a labour market
is undeveloped, or the employers do not
know the prospective workers well enough,
or the market is too risky or too seasonal for
continuous direct employment, or labour
regulations make direct employment contracts
too costly for the employer, engaging a labour
contractor may be rational.14 Economic
history recognizes that labour contractors
were routinely engaged in the early nineteenth
century cotton textile mills in England and
North America, and in the late nineteenth
century mills in India and Japan.15 Historically,
the drives behind such decisions included
a lack of information on labour markets or
communication gaps between the workers
and employers. Seasonality and risks were
sometimes at work too. There were additional
motivations to engage a contractor during the
early history of the mechanized factory. One of
these was the scarcity of managerial talents and
large-scale industry 195
specialized managers, which led employers to
share some managerial functions with skilled
foremen. And the other was the scarcity of
technical schools, and in turn the need to rely
on the skilled foreman as a master or provider
of training. As the industrial system attained
maturity, the contractor either became
absorbed in management or was subordinated
to the employer.
In India too, the intermediary fulfilled many
of these needs, and starting as a recruiter,
transformed into a supervisorforeman
trainer. In interwar Bombay, however, the
contractor remained powerful; in some
contexts became more powerful than before,
and in others more vulnerable. At the same
time, the feeling was widely shared that the
institution of the contractor had run its course,
and was merely a survival that imposed costs
upon the employer. Specifically, the contractor
was seen as an institutional obstacle to
attempts to raise output per worker. If it had
once been a help, it now became a burden by
reducing managerial control over the supply of
individual work effort.
The Workers
All large-scale industry involves a hierarchy of
workers on the factory floor. Until well into
the interwar period, skilled workers in cotton,
jute, steel, and other large-scale industries had
a significant percentage of foreigners, followed
closely by Parsis, and Hindu upper and literate
castes with high school education. Skilled
in this context would mean workers with
some formal training or education. All other
workers, who were trained on the job, came
mainly from agrarian and artisanal castes with
little or no education. This divide inside the
labour force was a notable feature of Indian
labour, and it meant that literacy and status
196 economic history of india
often came in the way of mobility inside the
mills.
The latter class of workers came from
certain regions: mainly the Konkan, the
Deccan, and UP in the case of cotton mills,
and north Bihar, eastern UP and Orissa in the
case of jute.16 These streams of migrants fell
into the larger pattern of internal migration
in colonial India. This pattern consisted of
two broad streams. The first went from north
to east. The second went from south to west.
Why did large-scale industry tend to employ
migrants rather than the locals?
One available hypothesis is that the supply
price of labour was low in the source regions
because of poor agricultural conditions.17
Local agrarian labour usually earned more than
what the migrants did in their home regions.
Recent work on migration complicates the
picture in two ways by bringing in family
and castecommunity into the picture. First,
migrants did not necessarily come from the
poorest rural classes. In both Bombay and
Calcutta, many individuals owned land back in
the villages they came from. Low supply price
at source was possibly a factor, given that in the
source regions demographic pressure (eastern
UP) and poor quality of land (Deccan)
did depress average earnings. However, the
prospect of balancing idle and active labour
time by peasant households also contributed
to migration potential. We do not know
enough about this decision making to suggest
how region made a difference.
Second, migration was segmented. That is,
migrants of specific background moved into
specific occupations.18 What segmentation
meant was that once a distinct ethnic group
populated a certain division in the mill,
subsequent recruits into that department
tended to hail from the same ethnic group. In
short, not all poor workers had equal chances
of joining a mill. Segmentation points to a
fundamental feature of the mill working force.
Divisions among workers along class and
community lines were deep and persistent, and
made a difference to the role of intermediaries,
industrial relations, training and recruitment,
and possibly class consciousness.19 Some of
the jobbers and contractors were there simply
because as community elders they wielded
particular influence upon a group of workers.
The share of women in the cotton and jute
factories fell, because women tended to be
replaced by migrant males. In both industries,
the fall in the proportion of women was
especially rapid during 192840. Employment
legislation made special provisions for women,
such as maternity benefits and prohibition
on night work. These laws often discouraged
employers when male labourers were available
for the same work.20 With such changes at
the workplace, there was also a change in
perceptions of womens work.21 Women
workers became disadvantaged in the urban
labour market by new perceptions of their
position in the family. They were meant to stay
at home and look after the rural work of the
family. With increasing withdrawal from paid
work, womens work tended to get devalued.
Mobilization
Employment legislation (Factories Act) and
trade union legislation (Industrial Disputes
Act) evolved slowly during the colonial period.
They began in the nineteenth century; but
these were somewhat effective and widely
known codes only in the interwar period. A
singular feature of labour practices in Bombay,
the premier mill town, was the delayed and
somewhat retarded development of bargaining
institutions, a feature that took a toll in the
long run in a particularly unstable industrial
relations scenario. An organized trade union
movement was practically unknown in the

textile mill industry until the 1920s. Bombay
witnessed strikes before the mid-1920s, but
these tended to be spontaneous, sporadic and
sudden outbursts, which sometimes generated
a scale of response that surprised everyone.
These strikes were in reaction to issues such
as wages and working hours. These occasions
ended as suddenly as they arose and, on several
such occasions, observers noted the workers
inability to combine in a systematic way or
sustain an action.
The first successful attempt at a large-scale
trade union in Bombay was that of N.M.
Joshi, who established the Bombay Textile
Labour Union in 1926. In the next decade, at
least eight other major unions started work,
while a few older and small ones merged with
the larger organizations, or simply became
defunct. The major issue in the 1920s was
wage standardization across mills, a problem
that reflected the haphazard way labour
practices had developed in the citys textile
mills. In the Depression-hit early 1930s, several
major strikes and closures put the industry
under stress, and drew the government deeper
into the conciliation process. One legacy of
this involvement left an indelible mark on
the bargaining process. This was the Bombay
Industrial Relations Act of 1946, which
recognized the Congress-affiliated Rashtriya
Mill Mazdoor Sangh (RMMS) as the sole
representative of textile workers in the city.
In these 20-odd years of organized
trade union movement, the difficulties of
conducting unions were huge. Membership
fluctuated, since many workers participated
in unions only to settle immediate grievances.
The migratory character of the workforce
and their rural roots, contemporary observers
believed, reinforced the syndrome of
opportunistic participation. The organizations
consequently relied too heavily on individual
initiatives. Employers, on their side, allegedly
large-scale industry 197
victimized union workers when they could.
These abuses were counteracted only by a
comprehensive legislation in 1938. And finally,
as movement for workers rights inevitably
became connected with anti-colonial struggles
and sentiments, the government did not
necessarily look upon mobilization efforts
kindly. Nevertheless, trade union membership
increased from 100,000 in 1927 to 400,000
(or approximately a quarter of the factory
workforce) in 1938.
Wages and Working Conditions
There was a wage hierarchy in the factory,
and those nearer the top could usually enjoy a
lifestyle better and more secure than that in the
village. But wages were usually not sufficient to
bring the workers families into the cities. Most
earned an income too little or too insecure to
think of growing roots in the city and giving
up connections with the land. Some sources
also found high levels of infant mortality and
morbidity in the urban slums. The plague
epidemic at the turn of the century exposed
the poor living conditions in working class
neighbourhoods (see also Chapter 11). Based
on these facts, historians have sometimes
characterized factory workers in the big city as
unfortunate human beings.22
But this is an unduly gloomy assessment.
Although real wages of urban workers were
low to begin with, there was a persistent trend
towards wage divergence between agrarian and
industrial labour and the latter earned a wage
two to three times that of agricultural workers
in the interwar period. The city dwellers never
suffered the threat of famine in the way the
rural population, and especially the lowly born
within them, did. Caste oppression and caste
as a barrier to entry in new jobs were a weaker
force in the cities. For individual workers, the
opportunities of occupational and income
198 economic history of india

mobility were greater in the cities than in the
villages. The evidence for this is the upward
trend in mill wages in the early twentieth
century, though there were differences
between places and over time (Table 7.5).
As we have seen, agricultural real wages
were stagnant in this time span, and peasant
incomes nearly so.
Evolution of Labour Laws
Labour legislation formally began in the
nineteenth century, even though really
effective steps were taken only in the interwar
period. The first important piece of labour
legislation was the Factories Act of 1880,
which mainly dealt with hours of work and
prohibition of child labour in the cotton textile
mills. It was introduced partly at the behest of
Bombays principal competitor, Lancashire.
However, campaigns by publicists like S.S.
Bengalee were influential too. The Act was
revised in 1891. Neither the 1880 Act nor
that of 1891 was seen to have a significant
effect. About 1900, electricity had come to the
factory floor, and the question of shift length
and night work by women came to the fore.
The 1911 Factories Act addressed these new
concerns, though the war suspended serious
efforts to implement the Act.
The Factories Act was revised again in
1921. By then, industrial relations had become
serious issues. The 1920s saw, generally,
disturbed industrial relations in Bombay. Soon
after their formation in 1919, the first elected
provincial legislatures in British India took
up trade union legislation. The relationship
between labour movements and nationalist
and left politics had become quite close,
and there was a strong political desire to
protect labour, not only from exploitation by
employers, but also from the police and the
courts who, it was believed, acted in a biased
manner when the employer was an European.
Provincial legislatures wanted to erect laws that
created room for direct government role in
settling disputes, even in writing contracts.
The fear of harassment derived partly
from a sense that some of the nineteenth
century laws on labourWorkmens Breach
of Contract Act, 1859, and Employers and
Workmens Disputes Act, 1860, and the
Madras Planters Labour Law, 1903which
had been used to restrain indentured
plantation workers from deserting work,
favoured the employers by making desertion

Table 7.5 Average Real Wage in Large-scale Industry, 190044

(annual average)

Bombay Cotton Textile Mills Ahmedabad Cotton Textile Mills Calcutta Jute Mills
1934 = 100 1951 = 100 1951 = 100
19004 45.2 37.8 64.0
191014 51.6 39.0 57.0
19204 66.2 47.4 53.0
19304 109.4 88.0 61.8
19404 106.0 95.2 74.0
Sources: K. Mukerji, Trends in Real Wages in Cotton Textile Mills in Bombay City and Island, From 1900 to 1951,
Artha Vijnana, 1(1), 1959, pp. 8295; Mukerji, Trends in Real Wages in Jute Textile Industry from 1900 to 1951, Artha
Vijnana, 2(1), 1960, pp. 5769; and Mukerji, Trends in Real Wages in Cotton Textile Industry in Ahmedabad from
1900 to 1951, Artha Vijnana, 3(2), 1961, pp. 12434.

a criminal offence. A specific case of an
industrial action in the Buckingham and
Carnatic Mills of Madras, which was declared
a criminal conspiracy by the employers,
also hardened views against these laws. The
Trade Union Act, 1926, set out procedures for
registration of unions and protection of unions
from harassment, and the Trade Disputes
Act, 1929, sought to create an institutional
framework to settle disputes.
The report of the Royal Commission
on Labour in India (1931) made a series
of recommendations on the framework of
labour law. The Depression delayed efforts
to put these into practice. But widespread
wage cuts immediately after the Depression,
and the subsequent flaring up of disputes
in Bombay, forced some action. In Bombay
province, industrial relations in the 1930s
were perceived to be especially volatile.
Not surprisingly, some of the most detailed
legislation governing disputes took shape
in Bombay, which moreover created a space
for the provincial government itself to enter
negotiations. The main example was the
Bombay Industrial Relations Act of 1946,
following an enquiry into the wage cuts. The
Table 7.6 Interest Rate in Industry, Trade, and on Government Paper (per cent per year)
Type of Loan 1772
Merchants 1 36
Merchants 2 12
Modern business (in Bengal)
Indigenous banker
Urban lender
East India Company regulation 2436
Average interest paid on government debt in India 9 56
Bank rate, Bank of Bengal
Sources: For sources and construction, see Tirthankar Roy, Factor Markets and the Narrative of Economic Change in India,
17501950, Continuity and Change, 24(2), 2008, pp. 13767; and Reserve Bank of India, Banking and Monetary Statistics
of India, Bombay, 1951.
large-scale industry 199
post-Depression money wage cuts also played
a role in the formation of the first Payment of
Wages Act (1936). Subsequently, the Bombay
Industrial Relations Act was subsumed under
the more general Maharashtra Recognition
of Trade Unions and Prevention of Unfair
Labour Practices Act (1971). One general
aim of the Bombay legislation was to allow
collective bargaining in a bilateral monopoly
situation, by recognizing one dominant union
as the sole representative of the workers in an
industry.
FINANCE FOR INDUSTRY
Capital for industry was scarce, as evident
in the prevailing interest rates in urban
transactions (Table 7.6). A modern banking
system was almost non-existent at 1850, and
developed slowly thereafter. The community-
bound, informal financial institutions were
sectarian in their choice of clientele. The major
government-backed banks of the period were
equally conservative about choice of clients.
The rest of the banking sector had limited
reach. Further, following the English tradition
and unlike German or Japanese banks, the
1812 18578 1880 190510 19305
1718 5 6 6
12 612
67 1218
12 12
45
7 5 6 6
200 economic history of india
Indian banking companies supplied only
working capital and not fixed capital.
The stock market was a rather small and
insignificant institution in the nineteenth
century. The amount invested in shares
even by the end of the interwar period was a
minuscule percentage of estimated savings in
the economy. Furthermore, in both Bombay
and Calcutta, stock transactions suffered from
a propensity towards speculation and insider
control. Much of the daily business in the
stock exchanges was done on the differences
in borrowed money, without compulsory
settlement of profits/losses in short-term
transactions. This feature, to quote R.S.
Rungta, was a sure sign of speculation as well
as disaster. Rungta explains the speculative
propensity in ethnic terms, by the presence
of Marwaris in this market.23 Ethnic clubs,
of course, made insider trading particularly
easy. But the propensity to engage in such
trade also reflected the absence of a good
regulatory system in the money market. In
the end, the people who did business in the
stock exchanges, though skillful and talented
in their own way, did not command the trust of
ordinary investors.
Scarcity of capital led to some distortions,
and some innovations. Shortage of fixed
capital led to under-capitalization of the
businesses that depended on bank finance.
New industrial investment followed a
high-risk trajectory. Fixed capital being in
short supply, there was a tendency towards
overcapitalization during booms. That is, the
machines were purchased at the time of rising
prices at the high prices. For, only such times
provided the investors with ready means of
payment. In normal times, there was under-
capitalization. That is, there was carelessness
about cash reserves and depreciation
allowance.24 During downturns, that condition
could push otherwise healthy businesses to
the wall. This vulnerability was increased
by the fact that most Indian firms tended to
pay excessive dividends in times of boom
to generate investor confidence. Generating
reserves was a smaller priority. On the more
innovative side, Indian companies tried to
popularize preference shares and debentures.
Debentures were a moderate success. Also,
mills of Bombay and Ahmedabad developed
a dependence on public deposits. This was
a useful source of funds, but a rather costly
and insecure one (see also distortions in the
financial system in Chapter 8).
Given the high cost of capital, it is
not surprising that the pioneers in large-
scale industry came almost entirely from
communities that had specialized in trading
and banking activities. Only they could raise
money relatively easily compared with, say,
the artisans or farmers. Only they functioned
in an atmosphere of a reasonable degree of
trust and mutual support. There was, thus, an
almost perfect correlation between hereditary
tradersbankers and large-scale industry. By
and large, fixed capital in large-scale industry
came from own sources of funds, or from
borrowings from within a small set of people
known to each other.
ENTREPRENEURSHIP
In 1850, on the eve of the rise of large-scale
industry, Parsis were the most prominent
community engaged in the trade of the two
principal exportable goods from the western
coast, cotton and opium. Among other
communities similarly engaged were the
Khojas, the Bhatias, the Gujarati traders and
bankers with their base in Ahmedabad, and
the Bombay-based Baghdadi Jews. Several
of them had some history of collaboration
with Europeans. Some had withdrawn from
more active maritime trade as European firms

based in London took control of the maritime
trade. Others had expanded their commercial
operations further afield into overland trade,
a legacy of the pattern of regional integration
made possible before the ascendancy of the
Company (see Chapter 2).
The owners of the first cotton mills came
from these communities, and partially from
European trading houses dealing in cotton (on
foreign investment in India, see Box 7.1). The
pioneering names among cotton millowners
included Petit, Wadia and Tata (Parsis),
Currimbhoys (Khojas), Sassoons ( Jews),
Khatau, Gokuldas, Thakersey (Bhatias from
Kutchch), and Greaves Cotton, W.H. Brady
and Killick Nixon (European houses). The
origin of Ahmedabads mill industry was more
rooted in Hindu and Jain business. Among
the prominent names, Sarabhais and Lalbhais
were Jain traders already prominent as pedhis.
The combination of cotton textiles and cotton
trade was an advantageous form of integration.
In Calcutta and parts of north and south
India, Europeans dominated large-scale
industry. Among the early pioneers there were
some speculative and reckless individuals who
did not survive long. But eventually, industry
based in Calcutta came into the control of
reputed managing agency firms. These were
already engaged in importexport trade,
banking and insurance. Interestingly, while
Indian business entered large-scale industry
(cotton) that competed with British goods
directly, the main sphere of European large-
scale industry was in such goods that did not
compete with British goods. For example, jute
(along with tea and coal), and engineering
industries that supplied machinery and
spares to the other industries, and supplied
government needs (see also on this co-
existence below). The large British firms in
Calcuttas manufacturing were, Andrew Yule
(jute, tea, coal, paper, engineering), Bird
large-scale industry 201
and F.W. Heilgers (jute, coal, engineering,
limestone), McLeod-Begg-Dunlop (jute,
tea, railways), Jardine-Skinner and George
Henderson (jute, tea, engineering), Octavius
Steel (tea, electricity), Shaw Wallace (tea,
coal), Gillanders-Arbuthnot (jute, tea, coal),
Macneill-Barry (jute, coal, electricity), Martin-
Burn (coal, wagons, dockyards, cement),
Balmer-Lawrie (coal, paper, engineering),
and Kilburn (tea, coal, engineering).
Smaller groups included Kettlewell-Bullen,
Mackinnon-Mackenzie, and Thomas Duff
(all three in jute). Two other large houses,
Williamson-Magor and Duncan Brothers,
mainly owned tea estates.
Supplying European firms raw materials
were Indian traders based in Calcutta, chiefly
the Marwaris. Throughout the eighteenth
and the nineteenth century, the Marwaris had
steadily dispersed from their original home
in Rajasthan and resettled themselves in new
business towns as moneylenders and revenue
farmers. From that base they began to enter
trade. Most of the prominent Marwari houses
of the city had migrated to Calcutta during
the last quarter of the nineteenth century. The
history of prominent Marwari houses such
as Birla, Badridas Goenka, Bansidhar Jalan,
H.P. Poddar, Ramkrishna Dalmia, Babulal
Rajgarhia, and others suggest that their main
interests about 1900 were in jute baling,
mining, zamindari, and import agency. By
the end of the interwar period, these firms
had entered the jute industry in a major way.
On a smaller scale they entered sugar, paper,
cement, construction, and share broking.
Their position as insiders in the stock
market, and the small holdings of many of
the British managing agents in the firms they
controlled, enabled the Indians to effect a
series of takeovers of foreign firms in the
1950s and the 1960s. The British owners
themselves found the changed political climate
202 economic history of india

Box 7.1 Foreign Firms in Colonial India

The word multinational today suggests a parent company engaged in manufacturing, with head office in
an industrialized country, and subsidiaries in developing countries. Usually the advantage enjoyed by the
parent is a technological lead. Often, such companies are run by managers rather than the shareholders.
This integrated-hierarchical model, which A.D. Chandler saw to be the inevitable course for large
diversified firms, fits the experience of many American and Japanese companies that expanded abroad in
the late twentieth century. But the model does not fit the experience of foreign investment from Britain
to India in the nineteenth century.
Most firms and businesses in colonial India that had a connection with Britain were, in contrast with
the hierarchical model, (a) not engaged in manufacturing, (b) not a subsidiary of a parent company
located elsewhere, (c) did not possess technological lead over Indian counterparts, and (d) did not have
corporate form, functioning as partnerships instead. The majority of such firms, called free-standing
companies by Mira Wilkins, formed of trading companies, and their main centres of operation were
the colonial port city. Their origin owed to their prior engagement as traders, shippers, agents, and
bankers in such locations. It was from a pool such as this, that some of the British managing agencies and
industrial firms of colonial India arose. They were products of a bottomup form of FDI rather than a
topdown form of FDI.
The Scottish firm of James Finlay began in 1765 as cotton mill owner and textile trader in Scotland
and continental Europe. In the 1830s, they started buying cotton from India and in 1862, opened a
branch in Bombay. In the 1870s, they started jute mills in Calcutta, and in the next decade, began selling
Indian tea. By 1900, they owned the major part of the area under tea in the Anaimalai and the Nilgiris,
which were consolidated under four companies listed in London. Their other ventures included a cotton
mill in Bombay and a sugar refinery in UP. In the 1830s, the ownership of the firm had passed on to a
former partner, John Muir, and the firm stayed as family controlled until 1924. Their core business by
then was selling tea worldwide, in which business the London companies played an important role.
Harrisons and Crosfield started as a Liverpool tea trading firm in 1844, and ventured into tea estates
in Ceylon and South India only about 1900. By then their distribution network was spread over a large
area in Asia and the Pacific, and the firm was beginning to produce rubber in Malaya. It abandoned
partnership quite late, in 1908. The firm of William Mackinnon started in the early nineteenth century
as importer of cotton goods into India, and established the British India Steam Navigation Company,
upon receiving a posts contract from the government. One of the companies connected with the group,
Mackinnon-Mackenzie, invested in tea estates, jute manufacturing, and shipping, and was one of the
leading managing agencies in Calcutta between 1860 and 1900.
The management and ownership pattern of firms like these are sometimes seen to represent a too
informal and personal way of doing business for their own good. As a more sympathetic account points
out, the personal element in business owed to the fact that their strength lay in tacit knowledge of
commodities and countries. They proved sufficiently entrepreneurial in integrating related businesses
when they needed to save on transaction costs. The move from tea trading to plantations can be
understood in this way. Although not multinationals in the modern sense, such firms maintained links
with London, Liverpool, Manchester, Glasgow, Dundee, and further afield, with Scottish firms in Africa,
Latin America, and Southeast Asia. These networks created scope for complementary businesses, and
facilitated exchange of tacit knowledge. Through such networks, skilled foremen came from Lancashire
to work in the mills of Calcutta and Bombay.
Readings: Geoffrey Jones and Judith Wale, Merchants as Business Groups: British Trading Companies
in Asia before 1945, Business History Review, 72(3), 1998, pp. 367408; J. Forbes Munro, From
 large-scale industry 203

Regional Trade to Global Shipping: Mackinnon Mackenzie & Co. within the Mackinnon Enterprise
Network, in Geoffrey Jones (ed.), The Multinational Traders, London: Routledge, 1998, pp. 4865; J.
Forbes Munro, Maritime Enterprise and Empire: Sir William Mackinnon and his Business Network, 1823
93, Woodbridge: The Boydell Press, 2003; Mira Wilkins, The Free-Standing Company, 18701914:
An Important Type of British Foreign Direct Investment, Economic History Review (EHR), 41(2), 1988,
pp. 25982; S.D. Chapman, British Free Standing Companies and Investment Groups in India and the
Far East, in Mira Wilkins and Harm Schroter (eds), The Free Standing Company in the World Economy,
18301996, Oxford: Oxford University Press, 1998, pp. 20217.

uncongenial. This was so especially because,
in the stock market manipulations, the Indians
received implicit support from the ruling
politicians. Several other firms, therefore, were
voluntarily sold to Indians. In the business
legends of Calcutta, this rather sudden and
near-total transfer of ownership is widely
held to be a reason behind the progressive
bankruptcy of these firms. Most of them
were subsequently managed badly, owned by
persons having little regard for efficiency, and
were robbed of assets. A detailed scholarly
history of the transfer is yet to be written.
In south India, the pioneers in large-scale
industry did not always come from the
traditional business communities, but also
from agrarian background. Unlike Bombay or
Calcutta, Madras offered narrower scope for
collaboration between Indian and European
capitalists. The response of the Chettiars to the
new economic opportunities in the nineteenth
century was unique. They went overseas. Lower
Burma became part of the British Empire in
1852. At that time the economic potentials
of the Irrawaddy delta were unutilized. A
modified ryotwari enabled land holdings to
be mortgaged. Credit fuelled export-oriented
paddy cultivation. The export boom ended
in the Great Depression. Although in the
early stages of the expansion, local labour
and finance played a role, between 1880 and
1930, Chettiar firms met an increasing part of
the credit demand of peasants, superseding
Burmese firms. This ascendancy has been
explained in terms of the Chettiars superior
business organization, in particular, to long
apprenticeship, training in business ethics
and techniques (such as a special accounting
system), group solidarity, inter-firm lending,
and informal sanctions to minimize default
within the group. Chettiar enterprise in Burma,
however, became caught up in an economic
and political crisis in the 1930s, eventually
forcing most firms to leave Burma.25 Capital
accumulated in these foreign operations did
flow into manufacturing before World War I,
but on a limited scale. In the interwar period,
the Tamil Nadu region witnessed a vigorous
industrialization, mainly based on small-scale
industry (Chapter 6). Two large-scale industrial
complexes also came up around Coimbatore
and Madras. The main source of capital here
was the savings of the rich cotton farmers-cum-
traders. Cotton farming and trade, indeed,
played a pivotal role in early industrialization in
all the regions of Tamil Nadu. Major Chettiar
groups entered industry in the 1930s. By then,
the composition of entrepreneurs had become
quite diverse.
BUSINESS ORGANIZATION
Informal Systems: Family and
Community
Historians often distinguish between formal
and informal modes of company management.
A simple definition of formality would be
204 economic history of india
any institution covered by laws recognized
by the state, and the state courts. By contrast,
informality would refer to personal and
communal understanding of norms and modes
of enforcement. In the case of colonial India,
the distinction, if valuable in some contexts,
is also somewhat artificial, for laws explicitly
protected and recognized some kinds of
informal institutions such as the joint family,
and many entrepreneurs straddled quite easily
the two worlds, formal and informal. It is
necessary to keep in mind this hybrid character
of the management of business, for it gave the
Indian businesses a unique kind of flexible
and competitive strength over their European
counterparts, who remained steadfastly
formal.
Examples of informal management systems
are family and community. Both these notions
need to be defined. A simple way to approach
community would be to understand what it
does in a business context. A community is a
guild that restricts access to capital, property,
trade secrets and knowledge to its members,
excludes outsiders from access to these
resources, and thus regulates competition
for these scarce resources. Guilds also settle
disputes between members, foster trust, and
help members in adversities. All of these
were valuable services for business. Even if
community and guild were identical in aims,
the reason for maintaining a distinction is that
the word guild usually refers to members of a
professional association, whereas community
refers to members of a professional association
who shared between them bonds of a personal
nature, kinship or marital ties, for example. In
medieval and modern Europe, guilds were a
part of the urban and industrial organization.
In India, merchants, bankers, and skilled
artisans more often relied on the community.
That is, individuals who shared a calling that
employed capital tended to be related by
kinship and marriage, and those so related
usually shared a calling.
Being a group which shared a profession as
well as personal ties, community approached
caste. However, community is a broader
notion than caste. While caste is a feature
of Hindu society, community encompasses
both Hindu and non-Hindu businesses. Non-
Hindu groups in India also behaved in quite
the same way as the Hindu ones in forming a
bond between kinship, marriage, and guild.
The Parsis, the Bohras, the Jewish groups, and
the Armenians were, socially speaking, more
conservative than such Hindu groups as the
Chettiars and the Marwari subcastes. Among
all these groups, personal ties could be and
often were used to offer incentives and mete
out punishments with a view to encouraging
loyal and trustful behaviour. The promise of
a good marriage or the prospect of a bad one,
and the threat of excommunication, were
matters of serious consequences from the
point of view of the vulnerable, but upwardly-
mobile, individual community member.
In the early history of mill building in
Bombay and Ahmedabad, the importance of
the community can be seen in various ways.
Parsi businesses, for example, formed of
partnerships between Parsis. One of the great
Parsi entrepreneurs of the early nineteenth
century, Jamsetjee Jejeebhoy, started his
career as an assistant in Parsi firms selling
opium in China, while also trading on his
own. When one of his former employers
lost heavily, Jejeebhoy appointed him as a
subordinate in the venture. When a merchant
relation died, Jejeebhoys own reputation was
sufficiently established for him to take over
the firm. Shikarpuri bankers and Chettiar
bankers, likewise, displayed strong preference
for recruitment of agents exclusively from
the same caste. This is not to suggest that
unorthodox partnerships cutting across caste

and community could not be found. Bombay
saw several such enterprises. Still, community-
based collaborations were the more usual
system in the mid-nineteenth century.
From the second half of the nineteenth
century, the commercial world began
to change almost unrecognizably as
industrialization progressed and new laws
came in place. Industrialization, which
required massive amounts of capital that
could not possibly come from the pockets
of ones own friends and relations, forced
upon communities the need to build more
unorthodox partnerships. In the 1870s,
legislation that addressed company formation,
contracts, and negotiable instruments, placed
formal sector enterprise on a more secure
footing. Limited liability fostered joint-stock
companies and banks, which raised money
from the public at large. Inside some of the
old communities, the Parsis are again an
example, disputes between older and younger
members were rife and often spilled over into
the court room. In the industrial era, a business
reputation derived from how well particular
companies performed, and thus fixed upon
successful entrepreneurs and families who
ran these companies, rather than upon whole
diffuse groups. In the increasingly complex
environment like that of Bombay, occupational
affiliations and chambers of commerce were
more important than personal connections. In
the twentieth century, the specific functions
served once by means of community could also
be served by hired managers.
In these various ways, the community
came under increasing pressure. It remained
remarkably resilient for a long time to come,
partly because the new environment created
some kinds of risk for which community
support was a useful insurance, and partly
because property laws respected the centrality
of the community, if in a redefined way.
large-scale industry 205
In British Indian property law, joint or
undivided family received a strong form
of recognition. The right of a joint family,
consisting of the blood descendants of a
male ancestor, over property held together,
superseded the rights of the individuals within
it. This form of property right, which the
law makers had borrowed from Hindu and
Islamic code books and was something of a
legal fiction rather than an adaptation to an
existing practice, was advantageous to business
families, as it restricted disputatious potentials
within the family and enabled capital to stay
undivided. Legally speaking, the business
castes and communities in the nineteenth
century consisted of a few dominant, rich,
large joint families, which secured connections
between themselves by means of marriage ties.
Outside this cluster, there was present a large
number of smaller and poorer friends and
relations.
Like the community, the joint family too
came under attack, in most cases, attacks from
within. Numerous court cases were filed in
order to establish the rights of individuals as
against the rights of the family. The demand to
divide property was forever present, and often
barely contained by the dubious authority of
patriarchs and elders. The twentieth century
has witnessed a veritable outburst of such
demands among all traditional business
families almost without exception.
Formal Systems: The Managing Agency
Corporate management was a field of many
experiments and repeated legislation. Until
1850, partnership was the general form of
ownership and management, which made
raising finance and management difficult
and clumsy. Limited liability was formally
recognized in the first Companies Act of 1850.
But it was not until the 1860s that its coverage
206 economic history of india
became comprehensive. The period 18605
saw a boom in company formation and share
markets. The crash that followed exposed their
organizational weakness. The 1870s saw a
revival of company formation. New legislation
also brought stability. The Bombay stock
exchange was organized in 1875, and began
to attract small investors. In this situation,
new paradigms in management started taking
root. One such institution was the managing
agency.
In this system, the directors or
representatives of the owners of a company
contracted a firm to manage that company
for a fee (or increasingly commission on
sales) for a fixed term. In some cases, the
promoter started a company and wrote a
management contract between the company
and itself. The idea of a management contract
had originated in the insurance business in
the early nineteenth century. It survived the
1840s depression that destroyed many of the
firms that had used this system. By the 1870s
it changed form to some extent and became
established in large-scale industry, mining,
and plantations. Strangely, many practices
associated with the operation of the system
remained outside legislation until 1956.
Why did the managing agency become
popular? One answer would point to the
scarcity of managerial talent, which could
lead to a few firms managing a number of
businesses; that is, a system of management
that conserved managers like any other scarce
resource. But this theory does not fit the facts,
for frequently the managing agent was the
promoter of a new firm rather than merely
managing it. Rungta suggests that the system
initially became popular because the financiers
of a new firm came from a small group of
rich, but busy merchants.26 They wanted to
try a new idea but did not have the time to
implement it themselves. So, when a promoter
came up with an interesting idea, they gave the
person money, contracted the management
to the former, and kept a close watch upon
the affairs of that company. They could do so
because both the proposer-cum-manager and
the shareholders formed a small club, often
from the same community. The managing
agency survived and continued because
the management contract proved to be a
remarkably adaptable system. It could adapt
to the joint-stock form of company formation
very well. In some cases, the managing agency
was no more than a holding company. In
others, the managing agent only managed the
company.
A significant role for the agent was raising
loans and deposits. Indian firms found it
hard to meet their fixed and working capital
requirements out of paid-up share capital,
and had to rely on loans and public deposits.
A large part of these loans were supplied by
the owners or the managing agent firms, but
substantial percentages came from banks
and the public. Loans required a guarantor,
and deposits required the borrower to be a
trusted and reputed name. The managing
agents served these functions. Given limited
information about the capacity of individual
managers or reliability of individual owners,
management tended to concentrate in reputed,
branded and publicly visible firms.
The situation changed when limited liability
became popular and many small investors
bought shares of a new company. Fixed
management contracts reduced the companys
options about changing its managers. In the
earlier era, when both the financiers and the
promoters belonged to one club, the removal
of the manager was technically feasible. In
the new era when the substantial body of the
owners now had no personal or direct control
over the managing agent, nor could they be
well informed about what went on inside the

company, the shareholders lost any means to
change the management. This information
gap enabled mismanagement and fraud. When
such conduct happened and a company went
bankrupt, shareholders could seldom recover
their money. Even when the owners were a
small group, the contract could be manipulated
to enrich the agents. And the agents routinely
and illegally speculated in commodity trade in
goods and raw materials in which the company
was interested. Such speculation was often
against the companys interests.
The system became redundant in the mid-
twentieth century. The simpler instrument,
the holding company, could perform the
controlling functions of a managing agent.
The reputation functions were unnecessary as
the capital market matured and became broad
based; brand names shifted from the managing
agent firm and settled on business families
and combines. As management emerged
as an independent profession, a market for
managerial labour emerged, and special
institutions to supply such labour became
unnecessary. The separation of owners and
managers had become a more real one in quite
a few firms. In 1970, the managing agency was
abolished.
The Co-existence of European and Indian
Business
Business historians find the co-existence of
foreign and Indian capital a phenomenon
of interest, and see their relationship and
contrasting business styles, long-term success
and failure, in terms of culture. Before World
War I, the two worlds were quite distinct.
The modern European world, which owned
mills, mines, and plantations, was more global
in commercial links, had easier access to
ports and railways, joint-stock banks and the
formal capital market. The Indian-dominated
large-scale industry 207
bazaar world engaged in commodity trade,
produced and traded in handicrafts, used boats
and carts for transportation, relied heavily on
caste and community for a variety of needs,
dominated the markets in shares and in bullion,
and used indigenous bankers for remittance
and capital.27 In Calcutta, the two worlds had
remained isolated until the interwar period,
being dominated by different sets of actors.
The modern business world was dominated
by European managing agencies, the Bank of
Bengal, the Bengal Chamber of Commerce,
and the Bengal Club, also called the unofficial
headquarters of the Raj. The bazaar was
dominated by a motley group, of which the
Marwari merchants and bankers were the most
important. The Europeans lived near the race-
course and the golf-course, the Marwaris lived
in havelis located in the Burra Bazaar. Until
1914, the bazaar supplied raw material to the
modern world, but the two did not carry on the
same businesses, nor were they equal partners.
In most other Indian mill towns, Bombay for
example, the two worlds were rather more
neatly integrated, and the modern was in a way
born in the bazaar.
The co-existence of these two spheres
made India distinct within the contemporary
world of business. India was not exceptional
in receiving foreign investment in the late
nineteenth century. Many colonies did, in
mines, plantations, and railways principally.
India was exceptional in having a strong body
of indigenous capitalists who carved their own
sphere of business alongside the colonial
capitalists. The strength of indigenous capital
made India unique among tropical colonies.
The co-existence was not a static one, however.
After the Great Depression, the dominance
of foreign capital was on the decline and
Indian capital was in the ascendant. Why
did Indian and European capital operate in
different segments? Why did European capital
208 economic history of india
dominate Calcutta so long? Why did they lose
that position after 1929?
Morris D. Morris proposes what we may
call the two-fields thesis in order to answer the
first question.28 The Europeans and Indians
specialized in distinct operations, driven by
their comparative advantages. Confirming
this view, ethnicity and factor markets were
interrelated. Each group could access a distinct
kind of capital market, product market, and
raw material market better than the other
groups in the initial stages of development
of factory industry. Europeans raised money
from London; their shares were purchased by
other Europeans. These shareholders included
former expatriates. Indians raised money from
family and community resources. Europeans
sold goods in export markets through a
transportation and communication network
centred in London. Indians sold goods in India
and China. Europeans relied on indigenous
agents for procurement of raw material. Indian
industrialists had been raw material traders
themselves, in cotton as well as jute. Culture
in this case, would refer to spheres of specialist
knowledge.
A.K. Bagchi approaches co-existence
from a different angle, that of dominance.
Culture in this context would connote race
and relations between races. Bagchi suggests
that colonial Calcutta created a platform
for socialized communication to develop
between three powerful groups, the political
elite (Calcutta was Indias capital), the British
managing agents, and the government-backed
Bank of Bengal. The European economic
interests formed an informal ethnic cartel.
Unlike colonial Bombay, in Calcutta wealth
and ethnicity were both defining features
of the informal guild that was the outcome
of these communication networks.29 There
were two fields no doubt, and the fields were
separated not only by comparative advantage
in information, but also by exclusive and race-
conscious Europeans.
B.R. Tomlinsons work on corporate capital
in the last days of the raj points at a shift in
comparative advantages in the post-Depression
years.30 The collapse of the world market
during the Depression, rise of nationalism,
development of formal and informal
institutions, and the growth of a home market
under tariff protection from the late 1920s, led
to a change in nearly all the parameters that
had once secured the two fields of advantage
and kept them separate. From the 1920s, the
economic and political environment ensured
that the sphere of business where the Indians
had an advantage, and the set of instruments
they controlled would become bigger.
Inevitably, as their relative sizes changed,
the two spheres ceased to remain discrete,
and came in direct conflict. The conflict again
had something to do with culture, although it
eventually destroyed the old divide between
cultures. In the context of the jute industry, it is
shown above how the mainly European cartel
could become vulnerable because of the non-
cooperation of the mainly Indian mill owners.
The Europeans moves to seek government
intervention in regulating the industry failed,
while polarizing sympathies further. In tea, the
cartel was more successful, even though in
the long run, entrepreneurial drive passed on
to the non-cartelized Indian estates. Despite
these dissentions within the business world of
Calcutta, a large number of British managing
agencies survived the Depression, the war,
Independence of India, and continued to
be profitable in the 1950s. Curiously, few
diversified their business away from jute, tea,
and coal, and took part in the new world of
opportunities then opening up. A.M. Misra
asks why the business opportunity offered

by a protected import-substituting regime
after 1947 was exploited almost entirely by
Indian groups rather than the British managing
agency firms, some of whom had been better
placed than the former in the heavy and capital
goods industries that were being promoted
by the new regime.31 Her answer is that the
broadly nationalistic attitude of some of the
leading houses of India made them more open
to risk-taking on a grander scale. Culture now
refers to political ideology, which accounted
for risk-taking.
All of these hypotheses on the dynamic
nature of the co-existence, and the varied
meanings of culture (specialization, ethnic
tensions, or sheer habits) have elements of
truth in them. But all of them underestimate a
yet fourth dimension of business culture that
lies close to the legal-institutional use of the
word culture. The Indians moved between
the informal world of community norms and
the formal world of corporate law and capital
market, with much greater facility than did
the Europeans. They straddled both spheres
successfully, and used it to great advantage
in undercutting European cartels. European
business, by contrast, was more explicitly law
bound and more transparent, but also more
vulnerable as a result. Surely, conservatism of
the colonial European firms weakened them.
But what killed them was their distrust of the
Indian businesses, which they considered to
be too secretive. They remained confined to
choosing strategy by formal means, which
limited their options to dysfunctional cartels.
In their turn, by using secrecy, informality,
community norms, and clannish combines,
the Indian groups by 1950, came to be firmly
in possession of the means to control, raid,
and loot the European firms through stock-
market takeovers and buyouts, with overt
or covert political help. One personality in
large-scale industry 209
Calcuttas long schizophrenic business culture
overwhelmed the other.
TECHNOLOGY AND COLONIALISM
Industrial technology in the factory sector was
almost all imported from Britain. If that fact
suggests a strong positive correlation between
colonialism and Indian industrialization,
a critical perspective offers the view that
colonialism, in fact, obstructed or distorted
the process of diffusion of technological
knowledge in India. In the sphere of
technological transfer, the process of diffusion
of technologies received sponsorship only
when the knowledge systems concerned
were useful to the imperialists.32 For, in an
imperial economy, western science was ... a
purveyor of solutions to the needs of imperial
governments.33 In showing that colonialism
obstructed transmission of useful knowledge,
proponents of the pessimistic view cite two
examples, the railways and the iron and steel
industry. India received an extensive railway
system soon after Britain did. The colonial
connection was crucial both in the decision
to build the railways and the manner in which
they were built. The railways greatly reduced
costs of bulk transportation.34 Did they also
foster knowledge transfer? In fact, the spillover
effects upon the capital market and production
of upstream industries was muted in the
nineteenth century. Capital came from Britain
under guarantee from the government of India.
And, in the pre-war phase, the buy-British
policy followed in the procurement of railway
rolling stock restricted the backward linkages
of railway development.35 The case of de-
industrialization of indigenous iron smelting
has been described in Chapter 6.
The pessimistic view overstates its case.
Global contact was crucial in the beginning
210 economic history of india
of factory industries. In the case of cotton
mills, the costs of cotton and labour were
low, but the costs of technology and skilled
foremen high in the early nineteenth
century. These costs were brought down as
the Indian port cities became more closely
connected with the British economy after
the Suez Canal opened. The cotton textile
mill industry, thus, was built with the help of
Lancashire machinery, technical manpower,
and Lancashire standards. Applied science
may well have been tools and tentacles of period of time. The contrast with the mills in
empire, to borrow Daniel Headricks labels;
but the imperial connection also empowered
Indians to develop their own capability in
scientific terms. How else can we explain the
apparent anomaly that the worlds longest
colonized nation is one of the more successful
exporters of knowledge-intensive goods and
services today? The empire enabled huge
knowledge spillovers. The major examples
include the stationary steam engine, the
telegraph, engineering education, and the
railways.36
Historians recognize that the dependence
of Indian business on British technology
had some costs too. In one interpretation
persistence with British standards led to
a dysfunctional regime in spinning in the
late nineteenth century.37 On the other
hand, the close contact between Bombay
and Manchester also enabled a quick and
successful diversification into weaving in
response to this problem. As in the case of
nearly all examples of late industrialization
founded upon a cotton textile mill industry,
the interwar maturation of the industry saw
import substitution in personnel, machines,
and spare parts. The Indianization of the
cotton mill supervisory staff, discussed
earlier, represents a successful and somewhat
under-researched case of capability building.
Such cases were perhaps not numerous. A
recent survey of technological choices in
private manufacturing attributes conservative
decisions and the restrained manner in which
capability building occurred, to risk aversion
rather than the actions of the state.38
The conservatism of the Indian
entrepreneurs exposed them to trouble in the
interwar period. The easy access to English
knowledge had allowed the mill owners to take
almost no interest in technology for a long
Japan is quite striking on this point. In Japan,
efforts to produce machinery domestically,
and improve upon Lancashire standards,
was present from earlier than in India, where
serious effort at import substitution in
machinery started only after Independence
and under aggressive government backing.
The Indians complacency about technical
efficiency received a jolt in the 1920s, when
competition from Japanese mills threatened
Bombay and Ahmedabad in the Indian
consumer market. Instead of trying harder to
improve efficiency, Indian business demanded
protective tariffs, which in the new fiscal
regime had become a more credible option
than before.
PRINCELY STATES
The growth of large-scale industry showed
similar trends between the princely states and
British India. In both, the really significant
growth occurred during the interwar period.
The industrial composition was similar. Thus,
in Gwalior, Indore, Baroda, and Hyderabad,
cotton textiles dominated large-scale industry.
Like British India, in Indore and Gwalior,
enterprise and capital mainly came from
north Indian mercantile communities such
as the Marwaris. But there were also several

differences between the states and British
India.
First, in the larger states such as Mysore,
Hyderabad, and Travancore, the government
played, or wanted to play, an active role in
initiating industrialization. The history of
state encouragement to industry in Mysore
is of particular significance. There, debates
about state policy became the field of a clash
between two basic approaches to industrial
policy then current in provincial circles.
One of these focused on adapting traditional
industry to modern markets and consumption
pattern. This is closely identified with the
name of Alfred Chatterton, a Director of
Industries in Madras, and briefly in Mysore.
The other focused on starting large-scale
industry, especially capital and intermediate
goods, under state sponsorship. It stressed the
need to make new technology, organization
and management more popular. This latter
approach was closely identified, in the Mysore
case, with the Prime Minister (Diwan) M.
Viswesvasaiya. After Independence, the
Government of India itself pursued such an
approach to industrialization. These ideas
were implemented with much zeal and long-
term consequences in Mysore state. Mysores
terrain and the many rivers had alerted the
policymakers to hydroelectric potentials.
Bangalore was perhaps the first major town to
be illuminated by electricity. The State seized
the industrial opportunity that this presented.
In the first quarter of the twentieth century, a
gold-field, cigarette factories, textile mills, and
a steel factory were started in the public and
the private sectors.
Second, in the large and resource-rich
southern states, natural resources played a
major role in shaping the composition of
modern enterprise. The textile industry was
present in the three larger states, Hyderabad,
large-scale industry 211
TravancoreCochin, and Mysore. But each
had its own specific types of resource-
intensive enterprise. Coal mining, tobacco
manufacturing and cement were important
in Hyderabad; and gold mining, steel,
sandalwood oil and soap factories in Mysore.
In TravancoreCochin, the major forms of
modern enterprise were plantations of tea,
rubber and coffee, and agricultural-processing
industries such as coir and cashew.
Third, in several of the princely states,
specific local communities had significant
presence in the ownership of large-scale
industry. They included, in Baroda, the
Kanbis, a landed group. Another notable
example is the Syrian Christian community of
TravancoreCochin, prominent in the regions
commerce, finance, industry and plantations.
The role of foreign capital was insignificant in
the north Indian states, and relatively weak in
Hyderabad if the railways and the colliery are
excluded. In Mysore, foreign capital was not
of large order. The Kolar gold-fields, the single
largest modern enterprise in Mysore, were
foreign owned, but this was an exceptional
case. On the other hand, in Travancore foreign
capital played a bigger role. Plantations and
agro-processing had a significant foreign
presence.
Fourth, consistent with the nature of their
industries, the states varied in the importance
of long-distance trade for their economies. In
this respect, Travancore was a case by itself.
The Travancore economy was significantly
more export oriented than most parts of
British India and the states, a fact helped by
the long seafront of the state and indirectly by
its rich maritime tradition. Of the other major
states, Baroda was well connected by rail with
Bombay port. But nearly all the others were
landlocked, and had no comparable history of
long-distance commerce.
212 economic history of india
CONCLUSION
In common with other parts of the colonized
tropics, India did not possess well-developed
capital and labour markets in the nineteenth
century, nor was its indigenous artisanal
tradition poised to experience a technological
revolution. It did have cheap labour,
cheap material, and community-bound
entrepreneurial resources, but capital was
expensive, large-scale labour markets non-
existent, transportation costs of material
high, and the merchants did not understand
machinery.
Indias colonial connection was
instrumental in overcoming these barriers
to industrialization. The railways brought
down carriage costs, British capitalists and
shareholders invested in India, and Bombays
merchants found it easy to hire foremen and
buy machinery from Manchester with which
they already had well-developed trading links.
Not all industries presented an equal chance
of overcoming the obstacles. The reduction
of costs favoured those industries, such as
textiles, in which India had a relatively strong
resource cost advantage. In machinery and
chemicals, domestic production would have
needed much higher injections of capital
and knowledge than was the case with the
cotton mills. Capital and intermediate goods,
therefore, were slow to develop.
In the pre-war phase of growth, the colonial
state hardly had a policy on industrialization.
Given the obstacles to industrialization, the
prevalent ideology, in common with elsewhere
in the tropical world, was in favour of allowing
India to specialize in peasant exports. But the
state did not try to force such a specialization
or to channelize capital and enterprise from
non-agricultural to agricultural pursuits. If the
state did not promote industrialization, it did
not obstruct it either. Urban capitalists were
left to their own devices, and many found in
mechanized industry a profitable outlet for
their capital.
The positive potentials of the
transformation weakened late in the interwar
period, partly because of slowdown in
the world economy, and partly, fiercer
competition at home. In cotton textiles, the
competition occurred between India and
Japan, and in jute between European and
Indian entrepreneurs. The colonial state
intervened rather more actively in this phase.
But the intervention again had no fixed
character. In cotton, protective tariffs became
available, with the understanding that the
new framework of preferential trade would
protect British interests. In jute, the provincial
government temporarily played a partisan role,
worsening political tensions between business
communities.
Factories were only one component of the
modern sector. The next chapter discusses
three other forms of modern enterprise.
NOTES
1. C.H. Feinstein, R.C.O. Matthews, and J. Odling-
Smee, British Economic Growth 18561973, Oxford:
Oxford University Press, 1982, p. 228.
2. Mancur Olson, The Logic of Collective Action:
Public Goods and the Theory of Groups, New Haven: Yale
University Press, 1979.
3. Bishnupriya Gupta, Why did Collusion Fail?
The Indian Jute Industry in the Interwar Years, Business
History, 47(4), 2005, pp. 53252. See also Bishnupriya
Gupta, The International Tea Cartel in the Great
Depression, Journal of Economic History (JEH), 61(2),
2002, pp. 14459; S.R. Sen, Restrictionism during the Great
Depression in Indian Tea Jute and Sugar Industries, Calcutta:
Firma KLM, 1997.
4. Vinay Bahl, The Emergence of Large-scale
Steel Industry in India under British Colonial Rule,
18801907, Indian Economic and Social History Review
(IESHR), 31(4), 1994, pp. 41360.
5. W. Arthur Lewis, Economic Development with
Unlimited Supply of Labour, Manchester School of

Economic and Social Studies, 22(2), 1954, pp. 13991.
6. Stanley Engerman, Cultural Values, Ideological
Beliefs, and Changing Labor Institutions: Notes on their
Interactions in John N. Drobak and J.V.C. Nye (eds), The
Frontiers of the New Institutional Economics, San Diego:
Academic Press, 1997, pp. 97, 102.
7. Frederick Engels, The Condition of the Working
Class in England, London: Penguin Books, 1987.
8. E.P. Thompson, The Making of the English Working
Class, London: Penguin Books, 1980.
9. Dipesh Chakrabarty, Rethinking Working-Class
History: Bengal , 18901940, Princeton: Princeton
University Press, 1989; Subho Basu, Does Class Matter?
Colonial Capital and Workers Resistance in Bengal,
18901937, New Delhi: Oxford University Press, 2004.
10. Cited text from Arjan De Haan, Unsettled
Settlers: Migrant Workers and Industrial Capitalism in
Calcutta, Modern Asian Studies (MAS), 31(4), 1997, pp.
91949, which contains a useful discussion of the various
perspectives in Indian labour history.
11. On labour laws and labour institutions as
colonial forms of quasi-servitude, see Ranajit Das Gupta,
Structure of the Labour Market in Colonial India,
Economic and Political Weekly (EPW), 16(446), 1981,
pp.1781806. Gail Omvedt reads these institutions as
a specific colonial form of interdependence between
the feudal agrarian order and the proto-capitalist
nonagricultural businesses, Migration in Colonial India:
The Articulation of Feudalism and Capitalism in the
Colonial State, Journal of Peasant Studies, 7(2), 1980, pp.
185212.
12. Tirthankar Roy, Rethinking Economic Change in
India: Labour and Livelihood, London: Routledge, 2005,
chapter 6.
13. On the intermediaries, see M.D. Morris, The
Emergence of an Industrial Labor Force in India, Berkeley
and Los Angeles: University of California Press, 1965,
pp. 12942; Chakrabarty, Rethinking Working-Class
History, pp. 10914; Rajnarayan Chandavarkar, The
Origins of Industrial Capitalism: Business Strategies and
the Working Classes in Bombay, 19001940, Cambridge:
Cambridge University Press, 1994, pp. 195207; Jan
Breman, Making And Unmaking of an Industrial Working
Class: Sliding Down to the Bottom of the Labour Hierarchy
in Ahmedabad, Amsterdam: Amsterdam University Press,
2004, pp. 1822.
14. For a survey of these issues, see Katharine G.
Abraham and Susan K. Taylor, Firms Use of Outside
Contractors: Theory and Evidence, Journal of Labor
Economics, 14(3), 1996, pp. 394424.
large-scale industry 213
15. On inside contractors in pre-1850 New England
mills, Andrew Dawson, A New Framework for Workshop
Contracting: Philadelphia Machine Building, 1870
1914, Labor History, 47(3), 2006, pp. 34359. The role
of the worker-intermediary in Indian industrialization is
explored more fully in Tirthankar Roy, Sardars, Jobbers,
Kanganies: The Labour Contractor in Indian Economic
History, MAS, 42(5), 2008, pp. 97198. See this article
for a fuller set of citations.
16. For example, Ranajit Das Gupta, Factory Labour
in Eastern India: Sources of Supply, IESHR, 13(3), 1976,
pp. 277329; and Morris, Emergence of an Industrial
Labour Force. See also Migration: Internal in Chapter 11
of this book.
17. Lalita Chakravarty, Emergence of an Industrial
Labour Force in a Dual Economy: British India,
18801920, IESHR, 15(3), 1978, pp 249327.
18. Arjan de Haan, Migration in Eastern India: A
Segmented Labour Market, IESHR, 32(1), 1995, pp.
5193.
19. See especially, Chakrabarty, Rethinking Working-
Class History; and Chitra Joshi, Bonds of Community,
Ties of Religion: Kanpur Textile Workers in the Early
Twentieth Century, IESHR, 22(3), 1985, pp. 25180.
20. Chandavarkar, The Origins of Industrial
Capitalism, p. 96.
21. Samita Sen, Women and Labour in Late Colonial
India. The Bengal Jute Industry, Cambridge: Cambridge
University Press, 1999.
22. Chakrabarty, Rethinking Working-Class History,
p. 11.
23. R.S. Rungta, Rise of Business Corporations in India,
1851-1900, Cambridge: Cambridge University Press,
1970, p. 211.
24. See, for example, P.S. Lokanathan, Industrial
Organization in India, London: Allen and Unwin, 1970,
p. 214; Rungta, Rise of Business Corporations, pp. 21314;
see the discussion in Indian Tariff Board, Internal Causes
of the Present Crisis, Cotton Textile Industry Inquiry,
Volume I, Calcutta: Government Press, 1927.
25. Michael Adas, Immigrant Asians and the
Economic Impact of European Imperialism: The Role of
the South Indian Chettiars in British Burma, Journal of
Asian Studies (JAS), 33(3), 1974, pp. 385401.
26. Rungta, Rise of Business Corporations, p. 252.
27. Rajat Ray uses the word bazaar to refer to
Asian Capital in the Age of European Domination: The
Rise of the Bazaar 18001914, MAS, 29(3), 1995, pp.
449554.
28. Morris, South Asian Entrepreneurship and the
214 economic history of india
Rashomon Effect, 18001947, Explorations in Economic
History, 16(4), 1979, pp. 34161.
29. A.K. Bagchi, The Evolution of the State Bank of
India: The Era of the Presidency Banks 18761920, New
Delhi: Sage Publications, 1997; and European and
Indian Entrepreneurship in India 190030, in Rajat
K. Ray (ed.), Entrepreneurship and Industry in India,
18001947, New Delhi: Oxford University Press, 1992.
30. B.R. Tomlinson, Colonial Firms and the Decline
of Colonialism in Eastern India 191447, MAS, 15(3),
1981, pp. 45586.
31. A.M. Misra, Business Culture and
Entrepreneurship in British India 18601950, MAS,
34(2), 2000 pp. 33348.
32. Daniel Headrick, The Tools of Empire: Technology
and European Imperialism in the Nineteenth Century, New
York: Oxford University Press, 1981, p. 205.
33. Roy MacLeod, Nature and Empire: Science and
the Colonial Enterprise, Osiris, 1, 2000, pp. 113.
34. John Hurd, Railways, in Dharma Kumar (ed.),
The Cambridge Economic History of India, Volume 2
(CEHI 2), Cambridge: Cambridge University Press,
1983, pp. 73761.
35. Ian Inkster, Colonial and Neo-Colonial Transfers
of Technology: Perspectives on India Before 1914, in
Roy Macleod and Deepak Kumar (eds), Technology and
the Raj: Western Technology and Technical Transfers to
India, 17001947, Delhi: Sage Publications, 1995. In
a more positive appraisal, the spillovers of the railways
were significant, if not on equipment, on construction,
Ian Derbyshire, The Building of Indias Railways: The
Application of Western Technology in the Colonial
Periphery 18501920, in Macleod and Kumar (eds),
Technology and the Raj, pp. 177215.
36. Some of the examples can be found in the very
literature that considers colonialism to be a bad influence
upon technological choices, see Headrick, The Tools of
Empire; Inkster, Colonial and Neo-colonial Tranfers;
Zaheer Baber, The Science of Empire: Scientific Knowledge,
Civilization, and Colonial Rule in India, Albany: State
University of New York Press, 1996. See also several
essays in Macleod and Kumar (eds), Technology and
the Raj; Jennifer Tann and John Aitken, The Diffusion
of the Stationary Steam Engine from Britain to India
17901830, IESHR, 32(2), 1992, pp. 199214.
37. Dwijendra Tripathi, Colonialism and
Technology Choices in India: A Historical Overview,
The Developing Economies, 1, 1996, pp. 8097.
38. Tripathi, Colonialism and Technology Choices.
8
Plantations, Mines, Banking
A bout a quarter of the workforce
was engaged in activities outside
manufacturing and agriculture. This diverse
segment remains under-researched. But
those engaged in the three modern sectors of
plantations, mines and banking and insurance,
have received more attention and deserve a
chapter. In common with large-scale industry,
these three forms of enterprise used relatively
new organizational forms, were more or less
global, and needed to adapt in varying degrees
to conditions of work in India. Although
often European-owned firms, the plantations
and mines utilized Indian customary forms
of hierarchy in dealing with labour; and in
banking, the nature of the Indian clients
influenced operations and performance. This
duality figures prominently in the historical
scholarship on these activities. The present
chapter will describe these sectors, and discuss
how the duality affected the developmental
potentials of these activities.
Within plantations and mining, it is
possible to narrow the description down
to two specific businesses, namely tea and
coal, without compromising too much on
coverage. By 1921, plantations and mines
together employed 1.1 million persons. This
figure represented less than 1 per cent of
total employment. But it represented nearly
one-third of employment in modern sectors.
Plantations employed 821,000 persons. Of
this number, 748,000 or 91 per cent were
employed in tea production alone (coffee and
rubber employed another 7 per cent). Mines
employed 268,000 persons, of whom 182,000
or 68 per cent were employed in coal. Others
were spread over many types of minerals, the
largest in employment being gold (8 per cent)
and mica (7 per cent). Coal was the oldest
form of modern mining enterprise dating back
to the early nineteenth century. Among others,
iron and manganese owed their growth to the
more recent iron and steel industry. Geological
surveys and industrialization diversified the
list of minerals of commercial interest by 1940.
But individually the new minerals employed
too few people to merit separate discussion.
This chapter first covers tea and coffee, next
coal and lastly banking and insurance.
216 economic history of india
TEA AND COFFEE PLANTATIONS
Early History of Tea
When the East India Company lost its
monopoly of China trade (1833), it turned
to India for supplies of tea. Assam, which
had become part of British India in 1825,
had the ideal climate and topography for tea
plantations. Efforts to develop plantations in
Assam began. The first Indian tea was made in
a government experimental farm and arrived in
England in 1838. Encouraged by the reception,
the Assam Company was formed the following
year taking over the governments farms.
Also in 1838, the government set up rules
for leasing out land to plantation companies.
The terms were liberal, and in some cases
liberalized further over time. The 1860s, which
saw a cotton mania in Bombay, also saw a tea
mania in Calcutta. The liberal terms of land-
use rules and visions of fabulous prosperity
encouraged the tea boom. The boom did not
last long because labour scarcity, inexperience,
poor transportation, and poor quality of tea
all turned out to be obstacles. The terrain was
inhospitable in the earlier years and needed
extensive investment in forest clearing. Labour
was not locally available. Although plantations
continued to expand in Assam, the period
184070 was not a profitable one for the
industry.
Transportation to and from the ports at
Calcutta and Chittagong was a major problem.
About 1850, the main mode of transport was
country boats. A historian of tea described the
problems that this system presented.
In the rains, tea chests could be taken in canoes down
the small streams flowing into the Brahmaputra, but in
the cold weather these streams dried up and as bullock
carts scarcely existed in Assam at that time, chests had
to be carried by coolie or by elephant. Even when the
tea had been brought as far as the Brahmaputra, the
difficulties of transporting it to Calcutta were great.
The normal method of transport between Calcutta
and Assam was by means of country boats, [which]
were generally dragged along the bank by ropes when
ascending the riverThe journey between Calcutta
and Gauhati seems to have taken anything from two
and a half to three months.1
A railway was necessary. The railways did not
replace the country boats, but created a more
functional network of short-distance and
long-distance transit (see Figure 8.1 on the
continued use of country boats).
A series of railway projects connected
Calcutta and Chittagong with the tea districts
of Bengal and Assam from the 1880s. The
steamer service was expanded in the same
decade. The death toll during the journey
fell substantially. With these developments,
the area under tea gardens expanded from
154,000 acres in 1880 to 337,000 acres in
1900. The number of workers increased
from 184,000665,000. Gardens came up in
the Darjeeling hills and the Dooars region
in north Bengal, and in the Surma Valley in
Eastern Bengal. Nearly 75 per cent of tea land,
however, was located in Assam. Tea was by
far the largest item of traffic from Assam to
Calcutta. The share of Indian tea in Britains
market increased from 7 per cent in 1868 to 54
per cent in 1896. The pace of growth slowed
in the early twentieth century, but remained
impressive. Acreage expanded to 502,173 in
1901; and to 715,000 in 1921. No significant
growth in acreage was possible after that time.
During the 1890s, the quality of tea improved
and costs of production came down.
Between 1860 and 1900, tea plantations
started in south India. Tea was already being
made in the Nilgiri hills. According to an
obscure legend, Chinese prisoners stationed in
the Nilgiris had helped planters manufacture
tea. In the early years of Assam plantations too,
Chinese workers had been hired. In the last
 plantations, mines, banking 217

Figure 8.1 Tea Chests being Loaded onto Boats in Assam, 1902 (photo taken by Bourne and Shepherd)
Transportation of tea from Assam to Calcutta initially used elephants, head-load workers, and rivers. From the late nine-
teenth century a combination of river and rail replaced what had been an extremely labour intensive and slow mode of
transport, and one moreover that exposed a delicate merchandise like tea to the violence of the monsoon of northeastern
India.
Source: Piyal Kundu and http://oldindianphotos.blogspot.com/

quarter of the nineteenth century, cultivation
was extended in the Wynaad and the Kannan
Devan hills in north Travancore. South India,
including the princely states, accounted for
a large part of the acreage expansion in this
period. Initially many planters switched
between coffee and tea, but by 1900, the coffee
zones and the tea zones had become clearly
demarcated.
World War I brought minor problems for
the industry in shipping and packaging, but
overall it was a period of growth in demand
for tea. The 1920s were prosperous too, even
though price fluctuations made the volume
of profits uncertain. From the end of the war,
the international tea trade cartel became more
powerful. In particular, the London-based
Indian Tea Association had begun from time
to time to exercise controls on the volume of
production, with a view to matching world
supply with world demand, so that profits
were protected. The south Indian planters
and the Dutch East Indies planters resisted
these actions. After the most serious episode
of crash (1931), the international tea trade
cartel became more powerful. World War II
218 economic history of india
again was a period of growth in demand. But
the 1940s also saw a massive inflation in food
prices. As tea was a labour-intensive industry,
the gardens faced a problem of procuring food
for the labourers. Nevertheless, plantation
workers were, relatively speaking, sheltered
from the famine conditions such as those in
Bengal in 1943.
Capital and Marketing System
Tea sales were made in auctions at Calcutta
and London. The participants in these
auctions were broker firms who sampled,
inspected, tasted, and valued tea from the
plantations. They brought tea to the auctions,
and gave advances to the tea growers. There
were few broker firms in Calcutta. All were
British concerns until Independence.
Ownership of estates was also
overwhelmingly European. Calcutta-based
British managing agent firms controlled the
majority of the estates and the largest of them.
The major firms were, Andrew Yule, McLeod,
Begg-Dunlop (merged with McLeod in the
interwar period), Jardine-Skinner, Octavius
Steel, Williamson-Magor, Shaw Wallace,
Gillanders-Arbuthnot, Davenport, and
Duncan Brothers. James Finlay controlled
almost the entire crop of the KannanDevan
hills. Bengali capitalists entered the industry
quite early (in the 1880s), but never
dominated it. The majority of them owned
small gardens in the Dooars. Most Indian
firms consisted of individual families rather
than corporate firms. They did not have
enough resources to invest in their estates, and
operated at the poorer quality range aimed
at domestic consumers. In one view, their
limited and low-level operation resulted from
European dominance in the tea trade and in
regional politics.2 In fact, the main barriers
to entry into exports did not consist in the
ethnic character of the tea cartel, but the much
higher capital and information intensity of
exports; capital being needed in marketing
and shipping, and information needed about
European markets. European firms had better
access to capital and information.
The sphere of operation of the Indian firms,
however, expanded after Independence. In
the 1950s, the Indian estate owners formed
an influential lobby. The new regimes implicit
bias against exports and a bias for the domestic
market made the indigenous capitalists feel
more at home than before. Partly reflecting
this shift in comparative advantage, a dramatic
Indianization of ownership happened in
the 1950s and the 1960s with the sale and
takeover of British firms by the prominent
Marwari business houses in Calcutta. McLeod
was captured by the SoorajmullNagarmull
group, Octavius Steel went to the Goenkas,
and Davenport to the Bajoria group.
Labour
About the middle of the nineteenth century
when plantations in Assam and Dooars
began to develop, the regions were sparsely
populated, had bad communications, and
the local labour pool was either non-existent
or insufficient. A class of contractors, called
arkatis, travelled through lower Bengal and
Bihar, not infrequently deceived potential
clients with false promises, and delivered
gangs of coolies to the gardens. The tea
mania of the 1860s in particular produced an
unscrupulous bunch of contractors. Some of
them were Europeans. Indenture contracts
were drawn before the labourer came to the
garden and could become familiar with the
conditions.3 The labourers understood little of
the terms of the contract, which legally bound
them to work in the plantations for a certain
period. Until the railways were opened, the

journey to the plantations was hazardous and
led to many deaths. Sanitary conditions at the
transit points were poor. Not all the deaths,
however, reflected the hardship of the journey.
The migration was heavier during famines,
when immunity to epidemic diseases was
generally low. The plantations offered poor
quality of life. The newly cleared forests, in
particular, exposed the migrants to malaria,
known as the Assam fever. The death toll of
migrants was high and the work heavy.
The general and acute labour scarcity could
not be adequately met with workers who felt
cheated even before arrival and were therefore
constantly seeking ways to escape. This gave
rise to demands for securing labour more
firmly to the land. The solution was a long
(five years to start with) indenture contract at
the plantation end. Desertions still occurred,
and to deal with desertions, the Workmens
Breach of Contract Act, better known as the
Act XIII of 1859, was passed. This made it
possible for employers to penalize and bring
back the deserting worker. On the other
side, to check some of the abuses, the Inland
Immigration Act of 1863 made it mandatory
for all contractors to be licensed. The duration
of the contract was shortened subsequently.
Labour shortage, however, continued,
and so did reports of abuse, even though the
mortality en route steadily declined. Another
act passed in 1882 allowed free recruitment
by unlicensed contractors. Free recruitment
was allowed in the case of supply of non-
contractual labour to the gardens. The goal
was to reduce the abuses of the indenture by
offering an alternative route to emigration. In
practice, most free labourers were also put on
a contract directly they reached Assam. The
so-called free labourers did not often see the
difference, and the free recruiters did not try
too hard to explain it to them. These labourers
were free until they reached big depots in
plantations, mines, banking 219
Dhubri or Dibrugarh, river ports where the
contracts were signed after considerable
haggling between the garden agent and the
contractors men over the commission.
In 1900, going to Assam still carried horrific
connotations in lower Bengal and Bihar. Yet, it
is doubtful if the majority of the migrants were
any longer forced or duped into going. Much
migration to Assam was voluntary and induced
by positive reports received from returnees.
During famines and epidemics, Assam
received a large number of migrants who
expected, rightly, that the estates would protect
them from starvation. Conditions of discipline
in the plantations were harsh, but neither wage
nor measurable quality of life was worse in the
plantations compared to agricultural work in
the source regions. In fact, a great deal of the
adverse reputation of Assam had built on the
notion of the region as a land-of-no-return.
Even after the indenture ended, few returned
home, nor was it easy to escape the contract.
Social stresses, such as the difficulty of finding
wives, added to the adverse image of plantation
life. While a large number of women went to
Assam, it was legally difficult for single women
to migrate. Therefore, there was a scarcity of
single women in the plantations.
Already in the newer regions like the Surma
Valley, and in some of the older plantations
in Upper Assam, a solution to these problems
had been tried, namely, recruitment through
garden sardars rather than by the outsider
contractor. The sardar was a senior worker and
supervisor. The planter gave him/her a paid
vacation on the promise that he/she would
bring friends and relatives to the garden. The
sardari coolies were cheaper, and they came to
the garden to stay there, for the sardars tended
to bring whole families over to the plantations.
The sardar also bore less of a search cost if
indeed he/she could persuade near relations to
join the return party. Eventually, the preference
220 economic history of india
for sardari recruitment was legalized and other
systems were outlawed.
Wages of plantation workers were only
slightly higher than the real income of
agricultural labourers and usually less than
those of factory or mine workers. The working
conditions improved after 1900. There was
better medical care and sanitation. By the
interwar period, abuses were the exception
rather than the rule. Tea garden labour was
now a settled population that had lost much of
its attachment to its places of origin. Relations
at work were based on a paternalistic hierarchy
between the workers and the managers, and
were sufficiently free and easy. And yet, legal
protection for jobs and working conditions
were slow to develop.4 New laws developed
much later, with the consolidation of a
nationalistic political stance on labour still
working under European direction. These
laws related to duration of contract, minimum
wages, and execution of contracts after and
not before the labourer came to the garden.
Wages were piece-rated. There was provision
for deductions if the plucking of leaves was
of poor quality. Rules about when these
provisions could be applied contained some
degree of arbitrariness.
The history of labour differed somewhat
between the major tea regions of India. As in
Assam or Dooars, workers in the south Indian
plantations came from the plains, the local
tribes being found either disinterested or
unreliable. In the early years, hill ranges such
as the Anaimalai were practically uninhabited,
and the workers carried many days food with
them when they came to work. However,
unlike in eastern India, the south Indian
labourers did not come from long distances.
Many came from Mysore and Madras.
Desertion was a problem that the south Indian
planter found difficult to deal with, because
breach of contract act did not extend to
Mysore. Further, Ceylon plantations initially
competed with Travancore and the Nilgiris for
labour.
The labour scarcity eased somewhat
after the famine of 1876, which increased
the flow of labour from the plains of Tamil
Nadu towards the Nilgiri estates. It is also
suggested that rising rent and stagnant wages
in the agriculture of the plains increased the
pressures to migrate to the plantation in the
latter half of the century.5 In any case, by
1901, the plantation labour force had become
predominantly Tamil and were permanent
settlers in the estates.
Coffee
Coffee plantations developed in the uplands of
Mysore, Coorg, Travancore and Wynaad, from
the third quarter of the nineteenth century.
Coffee, by some accounts, was introduced
to southern Mysore by an Arab pilgrim of
the name Baba Budan in the seventeenth
century or earlier. Calcutta had also seen
some attempt at a plantation. But the system
took root only in the South Indian hills. The
end of the Anglo-Mysore wars saw small
settlements of Europeans develop in parts of
the uplands, initially heading garrisons. In this
way, Mannantoddy, the only major town of
Wynaad, became a home for a few European
families. The European capitalists in Wynaad
were mainly engaged in coffee at the end of the
century. In Mysore, on the other hand, two-
thirds of the area under cultivation belonged to
Indian planters. About 1903, coffee engaged a
little less than 100,000 workers.
Initially, there were many obstacles to
starting a coffee estate. Although connected
by road to the ports of the Malabar coast, the
uplands region was relatively isolated because

of the difficulty faced by wheeled traffic on the
ghat roads. As late as 1865, coffee grown in
Wynaad was transported to the ports by means
of pack bullocks, large herds of which were
brought in from Mysore during harvests. The
transportation system improved somewhat in
the later decades of the nineteenth century.
Labour supply was seasonal and uncertain
in the mid-nineteenth century. Nearly all
workers were peasants in their villages, or
farm servants in paddy lands, and returned to
the village during harvests. The larger estates
could not depend on such seasonal labour, and
moved towards indenture contracts and Tamil
workers. In 1881, the Mysore state reformed its
mode of taxation of coffee, switching from an
output tax to a land tax. The reform provided a
major incentive to coffee estates to expand.
PLANTATIONS AND DEVELOPMENT
The profitable tea business led to much
repatriation of profits overseas. However, the
estates also produced some spillover effects
for the regional economies. Three such effects
merit special mention. First, plantation labour
was a better alternative to agricultural labour
for the poorest and the least skilled among the
workers. The nature of the work being similar,
it was easier for agricultural workers to join
plantations, whereas the prospect in getting a
factory job was more limited for them. Second,
the estates generated externalities in the form of
urbanization, transportation, schools, hospitals,
and a local trade network that supplied material
to the plantations and also facilitated marketing
of rural produce. Third, they generated profits
that flowed back into, and enriched almost
all the major towns in eastern India, such as
Calcutta, Gauhati, Darjeeling, Siliguri, Dhubri,
and Dibrugarh. The trades were also a source of
public revenue.
plantations, mines, banking 221
On the negative side, the formation of the
plantations entailed an uprooting of people
from their milieu. The uprooting had at times
a violent connotation that derived from an
information gap between rural labourers and
the contractors and planters, and from their
unequal access to legal resources. Plantation
labour did not represent a substantially more
skilled work than agricultural labour. The
labour colonies were replanted villages. And
the workers lived at an unbridgeable social
and economic distance from the managers
and owners. Finally, as in many other
spheres of business, the ethnic split of the
capitalists posed a problem. The Europeans
and the Indians represented distinct clubs.
They rarely collaborated. Eventually, the
Indians, who had weaker technological and
institutional capability, became politically
the more powerful group, at some cost to
the global reach of the business and quality
consciousness.
MINES
Early History of Coal
Modern economic growth built upon fossil
fuel. Coal was the main source of energy in the
initial stages, when steam engines dominated
industrialization. India had substantial
deposits of coal. But its wide usage had to
await the growth of modern industry and
transportation. The Company regime took
some interest in developing the commercial
extraction of coal. In the early nineteenth
century, the main use of charcoal was in the
smelting of iron by rural artisans. For the same
purpose, the ordnance factories needed coal in
larger quantities. Such coal was imported from
Britain, and sporadic attempts to use local coal
did not satisfy the engineers. With the growth
222 economic history of india
of steamships in Indian waters the demand
for local supplies strengthened. To meet this
demand Calcuttas agency houses started
small mining operations in western Bengal.
The Carr-Tagore Company (see Chapter 2)
acquired the only major colliery, Raniganj,
in the 1830s. It started enterprises that could
use this coal. After Carr-Tagore failed, the
colliery passed on to European hands. Inland
transportation of this bulky commodity was,
however, a serious problem. Rivers were not
navigable throughout the year. Road transport
was costly. Coal, therefore, continued to be
mainly imported.
Coal: 18501947
From the 1850s the situation took a different
turn. The railways connected Calcutta with
the deposits in Raniganj in 1855. Barakar and
Giridih were connected in the next 15 years
and Jharia in 1893. By 1940, small railway
lines connecting the mining towns with the
main routes criss-crossed the Damodar river
basin. Although smaller deposits were later
discovered in central and southern India, the
Damodar basin remained overwhelmingly
important, with the result that almost the
whole of India excluding Bengal had to bear
heavy transportation costs of fuel. This was
one factor encouraging the exploitation of
hydroelectric power in western India.
While transportation of coal to distant users
became progressively cheaper, further railway
expansion itself turned into a major source of
demand for coal. Jute mills of Calcutta were also
a major user of coal. At the end of World War I,
the railways alone consumed about 30 per cent
of the total Indian production of coal. Modern
industry, plantations and mining consumed
2530 per cent. Shipping and the Port Trusts
took 1015 per cent, and small-scale industry
and domestic users another 205 per cent. A
substantial quantity was exported from India
to Ceylon and Southeast Asia, replacing first
British and later Japanese supplies.
The period 18901919 has been described
as that of the coal rush in eastern India.
Output increased from 2.222.6 million tons.
The number of workers in the mines of Bengal
increased from 25,000175,000. The mining
business was profitable. In some years it was
exceptionally so. In 1860, domestic production
of coal was 0.3 million tons. It exceeded import
(0.15 m). In 1947, coal output was 30 million
tons. India was then a net exporter of coal.
Table 8.1 presents some figures on the growth
of production.
The interwar period saw considerable
fluctuations in prices and outputs. After 1920,
exchange appreciation and a dull world market
led to a fall in exports. The reputation abroad
for the quality of Indian coal was not very good
either. Conditions improved towards the end
of the 1920s. But they turned adverse again
during the Depression. In the early 1930s
many small collieries closed down and average
dividends paid and rates of profits dropped
substantially. The Coal Mining Committee
of 1936 was the response to these problems.
World War II revived profitability.
Capital in Coal Mining
Who invested in the coal rush of 18901919?
As in all Calcutta-based modern enterprises, in
coal mining too foreign firms and joint-stock
companies were the main owners of capital
in the pre-war period. There was a close
interlocking of jute and coal interests. The
interlocking not only supplied the mines with
a captive market, but also supplied the mines
with railway wagons for transportation to other
users at a time when wagons were in short
 plantations, mines, banking 223

Table 8.1 Production of Major Minerals, 18911938

1891 1921 19389

Coal (m ton): Total 2.30 18.40 28.33*
Bengal, Bihar, Orissa 1.92 16.18 23.00*
Iron ore (m ton): Total 0.02 0.94 2.74
Gold (m ounce): Total n.a. 0.39 0.32
Mysore state n.a. 0.38 0.32
Petroleum (m gallon): Total 8.47 305.68 322.66
Burma 8.47 296.09 251.33
Source: Statistical Abstracts for British India, Calcutta, various years.
Note: * Includes Indian States.

supply. The railways favoured the European
firms with wagons. They did so ostensibly
because their coal was of better quality, but
allegedly because of racial sympathies.6 In
1914, ten large European managing agencies
based in Calcutta owned almost all of the
capital of joint-stock companies interested in
coal. European firms supplied possibly over 80
per cent of the output. The main consumers
of this output were modern industry, shipping
and the railways.
The position of the small, individually-
owned Indian firms, who supplied the rest
of the output, was not inconsiderable. Their
share began rising from World War I. By 1947,
they supplied about one-third of the total
production. They mined low quality coal from
shallow pits, did not use much machinery,
and mainly served the domestic users of coal
and small-scale industries. Some of the early
Indian interests owned zamindari estates.
Zamindaris became involved in mining
in varying degrees. The most well-known
example perhaps is the Malias of Searsole
near Raniganj. The prominent Indian names
about 1913 were Bengalis who were former
employees or merchants of the European
companies. This class was instrumental in
setting up an association of Indian colliers.
The labour contractors in mining, again
usually Bengalis, had also bought up or
started a number of collieries. An increasing
proportion of coal mines changed hands in
the interwar period as the Marwaris bought
them from the Bengalis.
In 1914, the coal mining interests were
polarized in two camps, the Europeans
belonging to the Indian Mining Association
affiliated to the Bengal Chamber of
Commerce, and the Indians organized under
the Indian Mining Federation. The start of the
latter association was provoked by the railways
alleged preferential treatment of European
colliers. These associations not only worked as
cartels. The Indian group additionally tried to
popularize the use of coal in industries where
wood fuel was still being used. In the 1920s,
both associations joined hands to resist labour
militancy. Labour movements were causing the
mining industry problems at a time when the
market was beginning to experience depressed
conditions.
Technology and Labour in Coal Mines
Even as late as the 1920s, the extraction
technology was manual. Coal was cut by hand,
loaded by hand, hauled by hand, and wherever
possible, not extracted from great depths.
The smaller the mine the more primitive the
224 economic history of india
technology. The largest of the European mines
did use electricity and steam power for hauling
coal, for pumping out water from the mines,
and for lighting pits. But electricity was rather
an exception than the rule. This can be seen in
the large coal usage in the mines themselves. In
general, economies of scale were rarely utilized
fully. And the tools were not often of the most
productive type. The Indian mine labourers
average output was less than half that of the
British miner, and one-fourth that of the
Australian in the mid-1930s. Further, mines
were worked with little regard for conservation
and safety. Underground fires, subsidence, and
accidents, were rampant.
The profits of the coal business were
shared between the landlords and the colliers.
The owners of the mine lands were the
zamindars of the jungle mahals. By and large
they were a rent-receiving luxury-loving class
who held no interest in mining. They leased
out land to the colliers and received a fixed
rent, no matter the rate of profit. So they had
no interest in productivity either. Why did
the colliers not invest more in improving the
technology of mining? It is plausible that
the low productivity and mechanization
were adaptations to the low wages at which
coal labour was available. The mines hired
experienced and educated personnel only
for their small managerial cadre. The bulk
of the coal labourers were hired by labour
contractors at piece wages. With labour unrest
rising from the 1920s, the mines did not want
a permanent and skilled labour force. They
made sure that their work practices were such
as not to require a permanent labour force.
The existence of a cheap and unskilled labour
force on hire made mining costs unbeatably
low. But it also induced neglect for mining
technology, and discouraged incentives and
commitments.
In terms of labour recruitment practices,
the reliance on the contractor and piece-rates
was a feature common to both mines and
plantations. Wages, however, were higher in
the mines, and rose faster in mining until 1930.
Other Mines
Gold was mainly mined in south-eastern
Mysore. A European company leased these
mines and started a township in Kolar. The
first signs of profitable exploitation of gold
here were reported in 1886. Within a few years,
what was a desolate waste has thus become
a great industrial town, employing nearly
10,000 labourers.7 The mines became a vital
source of revenue for the Mysore state. Most
workers were migrants of depressed castes,
paid low wages, and usually of non-permanent
status. Their relationship with the employers
was guided by the companys control over
the judicial process. The work could lead
to diseases and accidents. Nevertheless, the
enterprise generated considerable externalities.
The image of plenitude and personal freedom
that drew migrants to the mining town was
well founded. Wages in the mines were
higher than agricultural wages. Consumption
was higher and more diverse. Social status
was less oppressive, while entrepreneurial
opportunities in the mining town were greater.
India has been one of the major producers
of mica in the world. The demand for
mica increased worldwide along with
the production of electrical and military
aeronautics apparatus. The demand was not
a steady one so that the prices and quantities
fluctuated a great deal. Mica was mined in
eastern India and in the Nellore district of
Madras. A recent work on mica in Nellore
shows how mining could become a lucrative, if
rather speculative venture. And yet it left rather

little positive long-term effects on the local
population or labour.8
Mining and Development
Coal, an enterprise that fed modern sectors,
was set up by European capital, and was highly
profitable throughout the colonial period. Coal
mining was a major source of non-agricultural
income in eastern India. Yet, the potential of
mining to generate broad-based economic
development was limited, for the mines used
work practices that were crudely manual. The
mines depended little on specific individual
skills, and invested little on developing
individual skills. The labouring population in
the mining districts lived a life that prevented
starvation; otherwise it was little better
than that of their rural neighbourhood. It is
probable that if high profits had coincided
at some point with a serious and persistent
labour shortage, technology and wages might
have begun to improve. But that stage never
came. It was even delayed by the regions
accelerated population growth. There was no
external pressure to make improvements in
technology, or offer labour better terms. In
other recent work on mining labour, the same
duality between an indifference to labour and
high profitability reappear.
That being said, mining did generate
positive externalities. In the Damodar basin,
the mines themselves were located in rural
or semi-rural areas. But these areas saw a
process of urbanization. Because these were
homes of white-collar workers small towns
grew with modern services such as banks,
hospitals, and schools. The mining towns
were a source of enterprise, and provided
diverse job opportunities. They were less
hierarchical places of work than where the
migrant labourers came from. The region
plantations, mines, banking 225
had a dense network of infrastructure, which
made it suitable later for a state-sponsored
industrialization.
BANKING
Structure
Banking in colonial India can be divided into
two broad segments: informal and formal. The
informal sector consisted of moneylenders and
financiers who were not legally recognized as
either companies or banks. Formal banking
in the colonial period had four constituents.
These were the exchange banks, the Presidency
Banks, the Indian joint-stock banks, and
the cooperative credit societies. A group
of foreign-owned exchange banks handled
foreign trade and remittance. The Presidency
Banks and private joint-stock banks handled
domestic trade and remittance in a small
formal sector. Indian moneylenders, banking
firms, and traders supplied the credit needs of
a vast informal sector consisting of peasants,
landlords, and artisans producing for local
markets and a large number of commodity
trades. These businesses were outside the
purview of contract, sale, and debt laws, even
though the legal system from time to time tried
to impose its authority upon these businesses.
The borders between the segments were not
clearly defined. The exchange banks deposited
a part of their balances with the Presidency
Banks. The Presidency Banks and Indian
moneylenders often financed two stages of the
same business, or were mediated by the shroffs.
Nevertheless, formal banking had at best an
indirect role in any occupation that did not
have to do with foreign trade, remittances, or
the modern factories.
Cooperative credit societies were started
after the passing of the Cooperative Societies
226 economic history of india
Act of 1904, which exempted cooperative
societies from the Indian Companies Act.
Rural credit societies rapidly increased in
number and deposits. But by 1947, this
remained a tiny segment of banking and not an
efficient source of rural finance either.
The Informal Sector
In the nineteenth and early twentieth century,
the ordinary use of hundi, the universal and
multipurpose financial instrument discussed
in Chapter 2 (banking and finance), had
become connected with trade, rather than to
a dependency on revenue in an earlier era.
Many large and small indigenous banking
firms continued to do business in hundi. The
hundis came in a wide variety of contractual
terms, and incorporated various kinds of
contingencies regarding safe and honest
delivery of the goods against which the bill
was drawn. The multiplicity of names of
hundis reflected in part the multiplicity of
contractual terms, and partly the communities
with whose names specific instruments were
associated. These two features of hundi were
causally connected. In the absence of specific
laws, the only way that contractual terms
could have some chance of being enforced
was to make the parties mutually responsible
in personal and social spheres of interaction.
In this way, commodity trade and the hundi
form of bills came to be conducted by the
same community, the Marwaris for example.
Aside from hundis, throughout India, a great
deal of the post-harvest crop movement was
financed in the twentieth century by means
of inter-shroff short term loans. Traders
borrowed from lenders who in turn borrowed
from other lenders, the chain at times reached
some of the large shroff houses whose bills
were acceptable to the formal sector banks.
Large inter-shroff transactions, however, were
strictly monitored by means of community
channels.
On the other hand, the dominance of the
community distanced hundi from modern
money markets where entry was more
open.9 At the same time the government
was becoming more anxious about the
closed nature of such transactions, and the
fact that the modern laws of contract did
not cover them effectively. The government
was also keen on taxing these contracts, and
succeeded partially by means of the Negotiable
Instruments Act of 1881.
A comprehensive history of local small-
scale moneylending is yet to be written. This
large and complex world changed a great
deal between the late nineteenth century
and the late twentieth, and yet, some features
that characterized it in more recent times
can be found in older descriptions as well.
Moneylenders existed in order to finance
agricultural and craft trades. Banks rarely, if ever,
lent to peasants and artisans. Many of the clients
of the moneylenders were people in need of
quick money and who could not give security.
Certain industriestanneries in Madras, zari
cloth manufacturers in Surat, silk weavers in
Benares, and biri (indigenous style tobacco)
merchants in Gujerathave needs which the
banks are unable to meet and informal credit
markets can accommodate.10 The strengths of
moneylenders were their intimate knowledge of
clients and absence of regulation, adding up to
low transaction costs for customers. However,
the small size of operation made the lender
more dependent on a limited set of clients,
and therefore, more vulnerable. In a remote
village a moneylender could impose an effective
monopoly. This aspect of market power has
often been exaggerated, while the considerable
risks the moneylender took in lending to
 plantations, mines, banking 227

impoverished clients engaged in unstable bills and securities, (d) advanced short-term
livelihoods, overlooked. working capital credit to private business, and
(e) accepted deposits from the public. Being
Exchange Banks partly the governments banker, the Presidency
Banks had to operate under restrictions. They
The failure of the agency houses in Calcutta were not permitted to deal in foreign exchange,
(Chapter 2) created a gap in financing foreign which was considered a risky business. And,
trade. Overcoming some resistance from the following Anglo-Saxon tradition, they did not
East India Company, foreign banks began supply long-term loans. They did, however,
to enter this field from 1853. These banks accept securities against advances, and
were formed at the countries of origin. But stimulated the capital market in this indirect
they financed trade from, and to India. Of way. In 1876, all three came under a single
the 17 exchange banks that remained at Act and a uniform set of regulations. In 1921,
Independence, seven had their head offices they were amalgamated to form the Imperial
in England, two each in the USA, Japan and Bank of India. In 1947, the Imperial Bank was
Pakistan, and the others were based in France, nationalized and renamed State Bank of India.
Holland, China, and Hong Kong. Four of The main clients of the Presidency Banks
these, including the Chartered Bank and were businesses connected with European
the Grindlays, had the bulk of their business enterprise and that small segment of Indian
in India. As a group, the exchange banks enterprise that the Europeans understood
monopolized foreign trade financing. While or could easily communicate with. Thus, the
the Indian private banks could in principle largest of the shroffs, the indigenous bankers,
enter this market, they could not easily operate were also clients of the Presidency Banks. The
at the London end of the market. The majority Presidency Banks were not easily persuaded to
of the clients of the exchange banks, on the lend money to small or medium-scale Indian
other hand, for reasons of safety or easier business. Increasingly in this period, joint-
communication, were foreigners themselves. stock banks were started by Indians to meet
that need.
The Presidency Banks Table 8.2 Growth of Deposits (in Rs billion)
The three Presidency Banksthe Bank Imperial Exchange Indian Joint-
of Bengal, Bank of Bombay and Bank of Bank Banks stock Banks
Madraswere established between 1809 and 1870 1.19 0.05 0.01
1843 with participation by the government 1880 1.14 0.34 0.06
in capital, and government control on 1890 0.71 0.75 0.21
management. Of these, the Bank of Bombay 1900 1.57 1.05 0.81
1910 3.65 2.82 2.56
failed in 1868, shortly after the cotton boom
1920 8.70 7.48 7.11
of Bombay. But a bank of the same name was 1930 8.40 6.81 6.83
started again. These banks performed five key 1939 7.88 7.51 9.81
functions: They (a) held the governments Source: Reserve Bank of India, Banking and Monetary
cash balances, (b) issued (on a limited scale) Statistics of India, Bombay: Reserve Bank of India, 1951,
and circulated currency notes, (c) discounted various tables.
228 economic history of india
Indian Joint-stock Banks
The history of the Indian joint-stock banks
until the start of the Reserve Bank of India
is a history of booms followed by crashes.
The first boom occurred in Calcutta in the
early nineteenth century. The agency houses
performed some banking services for the East
India Company, private merchants, and the
public on a small scale. The 1830s and the
1840s commodity price crashes finished them
off. The second boom occurred in Bombay in
the 1860s, encouraged by cotton speculation
and the recognition of limited liability. Again,
most of the banks then started later went into
liquidation. A third boom occurred with the
spread of the spirit of swadeshi from 1906.
The centre of this boom was Calcutta. But
Indian banks elsewhere also profited from the
nationalistic wave. In 191314, a few major
bankruptcies led to a widespread crash of
these banks. In the interwar period, the main
episode of banking panic occurred in 1923.
In this rather awkward way, Indian joint-
stock banks as a whole expanded and the habit
of banking spread among urban households.
Until the end of World War I, deposits held
at the Presidency banks exceeded those held
in the Indian joint-stock banks. Thereafter,
growth of deposits in Indian joint-stock banks
was far more rapid, despite periodic panics. In
1947, the Indian banks together formed the
largest segment in modern banking.
Despite the high risks the Indian banks
continued to grow rapidly for three reasons:
the limited reach of the Presidency banks,
their conservative policy, and the offer of high
incentives by the Indian banks. The Presidency
banks were slow to expand branches. They
had almost no presence in smaller towns.
Many such towns had considerable demand
for credit due to agricultural trade. Being a
governments banker made the Presidency
Banks rather rigid and complacent. They never
tried hard to seek out business from the private
sector.
The Indian banks were a diverse group. At
the top of the hierarchy were a set of relatively
more sound and stable banks (mainly the
big five consisting of Allahabad Bank, Bank
of Baroda, Bank of India, Punjab National
Bank, and Central Bank of India). These were
established in the larger towns, and arose from
existing business partnerships between large
trading and industrial houses. All members
of the set survive today as nationalized banks.
The Allahabad Bank was started in 1864 by
a group of Europeans, but functioned much
like the other large Indian joint-stock banks.
The Bank of Baroda was started in 1908 by
the Maharaja of Baroda, Sayajirao Gaekwad,
in close collaboration with the leading shroff
houses of Baroda. The establishment of
the Bank of India in 1906 was led by David
Sassoon, with contributions to share capital
from the leading Parsi, Gujarati, and Bohra
houses of Bombay. The Central Bank was
established in 1911 by a Parsi house, and
merged with the Tata banking business in the
1920s. The Punjab National Bank (1895)
was started by a group of traditional business
houses based in Lahore, and was the only one
of the set that claimed to be a nationalistic
enterprise. To this list should be added the
Canara Bank, started by lawyers of the Goud
Saraswat community, who had a tradition
of community banking.11 All of these banks
survived the panics. The ability of these
banks to weather the risks of commerce owed
to prudent management, the deep pockets
of some of the main promoters, and to a
conservative investment profile. They held
an unusually large proportion of assets in the
form of government securities, and functioned
in this respect much like the Presidency Banks.
Further, almost all of these banks confined

their operations to urban and larger clientele,
again in resemblance of the Presidency Banks.
They had few branches, and few chosen
clients.
At another end of the hierarchy, many
Indian banks were backed by lesser-known
firms. While they were less conservative
about their clients, they had neither the
brand name of the Presidency Banks nor the
image of high security that the government
backing gave the latter. Therefore, they felt
that they needed to offer high incentives to
attract deposits and borrowers. Furthermore,
the absence of an explicit regulatory system
made them take undue risks. The risk mainly
arose in the shape of insider lending. Many
of them avowedly exist to serve the interests
of particular castes and communities.12 Loans
made out to relations and kinsmen had a high
chance of turning bad partly because these
were not personal loans but money taken from
the public, and the public did not belong in
the same community as the borrowers and
managers. Thus, these banks suffered from
undercapitalization, inexperience, insider
lending, high chance of swindles, adverse
selection, and the absence of a lender-of-last-
resort.
A subset of the smaller Indian banks
consisted of swadeshi or nationalistic
enterprises. The common features of the
swadeshi banks, started between 1906 and
1913, were small paid-up capital, boards
of directors predominated by lawyers,
and management by persons without any
experience or knowledge of banking. They
secured deposits by offering high rates, and
lent on second-rate securities to risk-taking
businesses. Unlike the Presidency Banks, the
swadeshi banks did not necessarily restrict
themselves to working capital. While their own
reserves were small, the absence of a lender-
of-last-resort pushed even slightly troubled
plantations, mines, banking 229
banks quickly into liquidation during episodes
of panic. These dynamics of instability were in
evidence on a number of occasions between
1913 and 1946.
The Evolution of a Central Bank13
The Reserve Bank of India was established in
1935. The idea of a central bank had a long
pre-history. Warren Hastings proposed it in
1773. The goals were to have a governments
banker, develop a competitor for the shroffs,
on whose help the Company still relied
heavily, and resolve the chaos that arose from
a number of currencies in circulation. A bank
did materialize from this proposal. But despite
making some profits in the few years when
it had been at work, it was quickly closed
possibly due to conflicts within the Company.
Subsequently, the Presidency Banks took care
of the most pressing of these needs, namely,
that of a banker to the government.
There are four functions that a central
bank is expected to perform: (a) banker to
the government, (b) banker to other banks,
(c) regulation of currency and money supply,
and (d) management of foreign exchange.
The Presidency Banks (and the Imperial
Bank of India after 1921) served only the
first of these. In addition, they functioned as
commercial banks. They did become bankers
to other banks on a voluntary basis. That is,
they received deposits from other major banks,
but not by force of law. Moreover they were
neither obliged to nor expected to lend to
other banks in times of crisis. The Presidency
Banks had little or no role in meeting the
third and the fourth objectives. Until the
establishment of the Reserve Bank of India,
the finance department of the government
looked after the third objective.
The need for an institution to serve all the
functions of a central bank was periodically
230 economic history of india
restated, especially since the model of the Bank
of England was in the minds of influential
voices on Indian finance. In the 1860s the
proposal was briefly revived. The then viceroy,
Sir John Lawrence, discarded it. His minute on
the subject revealed that the government was
not willing to accept the idea of a monetary
authority independent of its influence. The
proposal was revived in the course of the
1898 currency reform committee. The Royal
Commission on Indian Finance and Currency
(1910) invited J.M. Keynes and Sir Ernest
Cable to write a proposal for a central bank.
Keynes was known to be in favour of the
idea. The government, however, remained
inert and distracted by the war and the
exchange controversy. Besides, the idea of an
independent monetary authority was still an
anathema to many.
The idea finally came into its own at the
1926 Currency Commission and the 1931
Indian Central Banking Enquiry Committee.
Both reports officially endorsed it, and
recorded a strong recommendation for it from
influential witnesses. One of them was Sir
Montagu Norman, the then governor of the
Bank of England. When the Reserve Bank
finally started, one of its first tasks was to
integrate what seemed to be a fragmented and
chaotic banking system. This was not done
suddenly, nor was it done completely. Rather,
it was attempted in a series of steps, some of
which were forced by circumstances such as
further banking panics.
Banking and Development
There is sufficient sign that throughout
colonial India, interest rates tended to fall
during the time span covered by this book
(Table 7.6). The nominal Bank of Bengal
bank rate was 7 per cent in 1857. The Imperial
Bank of Indias bank rate hovered between 5
and 6 per cent on average in the 1930s. The
decline was a steady one, and excluding the
price depression of the 1930s, would suggest
a fall in real interest rates. The growth of
formal banking, therefore, was a positive
development. And yet, there were reports
of credit rationing. And even a 6 per cent
interest rate was considerably above European
benchmarks.
Credit rationing was pervasive, and
frequently commented on, for example, in the
report of the Indian Industrial Commission
(1918). One obvious problem was poor
information. When the banker was a European
officer of a Presidency bank, and the borrower
was the owner of a small Indian firm, the
creditworthiness of the client was neither easy
to measure nor taken for granted. Asymmetric
information was also present in the business
of the exchange banks for the same reason.
And in the business of the Indian joint-stock
banks, preference for insider lending meant
an implicit rationing of outsiders in need of
credit. As mentioned before, financing new
investment tended to push the investor to
high-cost sources. The banks insisted on
good quality securities, which none but the
richest firms could offer. Many smaller firms,
in consequence, find it difficult to satisfy a
bank.14
Long-term capital came from commercial
accumulation and from the capital market.
The London money market, however, was
out of reach for most Indian investors, and
raising money in Calcutta or Bombay stock
markets, though cheap, was not possible
for everyone. Most Indian firms tended to
pay excessive dividends in times of boom
to generate investor confidence. Generating
reserves was a smaller priority. When loans
were available at all, too much was taken. The
low reserves and high leverage could turn
crippling during downturns.15 Shortage of

capital led to dependence on new sources of
finance that could become a risk or liability at
times. For example, Bombay and Ahmedabad
mills depended heavily on deposits from the
public. Depositors had little commitment to
the industry. As there were no banks or other
institutions intervening between the mills and
depositors, the latter were apt to be easily led
away by any bazaar gossip.16
In short, the market for money suffered
from a dualistic structurerich clients, good
government securities, and stable banks
formed one segment, while poorer clients,
risky securities, and unstable banks formed
another. It would be mistake to believe that
the split ran along ethnic lines. Although the
Europeans were concentrated in the former
segment, it was not populated exclusively by
Europeans, whether we look at the banks or
their clients. The latter segment, however,
was entirely composed of small, community-
oriented, Indian firms.
Turning to the depositors, a substantial
increase in the scale of deposit indicates
that banking did encourage saving habits.
Between 1900 and 1937, total deposits in
all commercial banks expanded from Rs
3432,500 million. The ratio of deposit to
income roughly doubled. This is a significant
increase. But the aggregate rates of savings and
investment remained low and choice of assets
remained mainly traditional. At the end of the
time span, bank deposits formed a rather small
proportion of estimated financial savings,
probably 1015 per cent.
INSURANCE
The history of the insurance business is
significant for several reasons. It had been
started early. The Calcutta agency houses
introduced it in the late eighteenth century.
They supplied mainly marine insurance.
plantations, mines, banking 231
Indian business enterprise of Calcutta was
interested in insurance in this early phase.
While the agency houses collapsed, the
insurance business survived and continued
to draw new entries. Insurance was also the
originator of the managing agency system.
Commercial life insurance began in
1818 with the Oriental Life Assurance Co.
of Calcutta (no relation of the company of
the same name today). In 1823 the Bombay
Life Assurance Co., and in 1829, the Madras
Equitable Co. were formed. The idea of
life insurance had come from London. In a
country with low life expectancy one would
expect insurance to become instantly popular,
if expensive. To the contrary, it remained
confined mainly to the small resident
European population. The reason was the
absence of reliable mortality tables for Indians.
It took nearly half a century more for Indian
insurance providers to treat Indian lives as
equivalent to the European ones. The Bombay
Mutual Life Assurance Co. was the pioneer in
this respect.
From a small base, the total stock of policy
values increased rapidly after the 1870s. This
was one business more or less unaffected by
the Great Depression. Per capita policy value
increased from about Rs 0.37 in 1901 to Rs
7.81 in 1941. But both coverage and average
value were fractions of those of any developed
country of that time. Other than its limited
reach, a major problem of the business was
the high mortality of companies rather than
their clients. These problems were similar to
those of the banking sector, and were probably
related.
CONCLUSION
Assessments of plantations and mines have
been overly influenced by the rather severe
and disapproving tone of the neo-Marxist
232 economic history of india
historiography of colonial labour. These
activities had significant positive spillovers.
They generated incomes for themselves and
for the regional economies, contributed to
the working of a modern global economy,
and shaped the lives and labours of a million
people directly employed by them. While
migrant labour in plantations worked in a
hierarchical environment, they came from
backgrounds that had been usually more
insecure economically and no more socially
elevating.
Banking and insurance grew rapidly after
1870. This growth was not really rooted in
the old banking tradition. Rather, it originated
mainly in European enterprise, and partly
in Indian mercantile enterprise. The growth
occurred in a condition of pervasive capital
scarcity, poor regulation, and opaque business
communities. Inevitably, capital was transacted
in a manner that left much scope for secrecy
and opportunism. While banks induced a fall
in interest rates and a rise in depositincome
ratio, the scale of these changes was limited. A
dualistic structure of banks, with good banks
and good clients on one side and dubious
banks and risky or unscrupulous clients on
another, kept the risks of banking panics
persistently high.
Chapters 48 have described production
and occupations in which the role of
infrastructure has been present throughout.
Chapter 9 turns to this subject.
NOTES
1. Percival Griffiths, The History of the Indian Tea
Industry, London: Weidenfield and Nicholson, 1967, pp.
6334.
2. Ranajit Das Gupta, Economy, Society and Politics
in Bengal: Jalpaiguri 18691947, New Delhi: Oxford
University Press, 1992, pp. 625.
3. Formally, indenture was a contract to serve for
a fixed term, usually several years. Informally, because
workers were often non-literate and ill-informed, the
contract could resemble slavery. Historical scholarship on
South Asia debates its resemblance to slavery.
4. Griffiths, The History of the Indian Tea Industry, p.
345.
5. Barbara Evans, From Agricultural Bondage to
Plantation Contract: A Continuity of Experience in
Southern India, 18601947, South Asia: Journal of South
Asian Studies, 13(2), 1990, pp. 4563
6. Ratna and Rajat Ray, European Monopoly
Corporations and Indian Entrepreneurship, 19131922.
Early Politics of Coal in Eastern India, Economic and
Political Weekly (EPW ), 9(21), 1974, M53M55.
7. Mysore, Mysore Gazetteer, Mysore: Government
Press, 1927, p. 2986. See also Janaki Nair, Miners and
Millhands. Work, Culture and Politics in Princely Mysore,
New Delhi: Sage Publications, 1998, which is mainly a
history of labour in the enterprise.
8. K. Das, Growth and Decline of Mica Mining
Industry in Nellore, 19111950, Indian Economic
and Social History Review (IESHR), 28(4), 1991, pp.
393416.
9. The strong ties of caste and community tend .. to
isolate the hundi market from the general modern market
for short-term funds, S.K. Muranjan, Modern Banking in
India, Bombay: Kamala, 1952, p. 146.
10. T.A. Timberg and C.V. Aiyer, Informal Credit
Markets in India, Economic Development and Cultural
Change, 33(1), 1984, pp. 4359.
11. The Central Bank of India, Silver Jubilee Number,
Bombay, publisher unknown, 1935; Dwijendra Tripathi
and Priti Misra, Towards a New Frontier: History of the
Bank of Baroda 19081983, Delhi: Manohar, 1985; M.V.
Kamath, A Banking Odyssey: The Story of Canara Bank,
Delhi: Konark, 2006.
12. Muranjan, Modern Banking, p. 169.
13. S.L.N. Simha, History of the Reserve Bank of India
193551, Bombay: Reserve Bank of India, 1970.
14. Indian Industrial Commission, Report of the
Indian Industrial Commission, Calcutta: Government
Press, p. 213.
15. A citation describing how the typical swadeshi
enterprise began is a good illustration: Most industries
are started in Bengal with inadequate capital. Where
rupees 10 lacs are required, the promoters, as soon as
they raise rupees 2 lacs, buy land, erect buildings, and
then approach banks for loan to purchase machinery by
mortgaging land and buildings. When the machinery
arrives, it is hypothecated and further loan is raised to
purchase more machinery. By the time manufacture
 plantations, mines, banking 233

starts the industry is heavily indebted. Anonymous, Calcutta, designed to make students more familiar with
Banking, Career Lectures, Calcutta: Calcutta University, such vocations.
1939, pp. 22930. This is a collection of popular lectures 16. Nabagopal Das, Industrial Enterprise in India,
by persons established in commerce and industry in Oxford: Oxford University Press, 1938, p. 9.
9
Infrastructure
A t Independence in 1947, the most
tangible legacy of colonial rule in South
Asia was the modern infrastructure that the
regime had left behind, built to a large extent
with British know-how. This legacy included
the railways, the ports, canal irrigation, the
telegraph, sanitation and medical care, the
universities, the postal system, the courts
of law, information-gathering systems, and
scientific research laboratories. The immediate
motivation behind infrastructure development
was governance rather than development. Once
built, such assets did not only serve imperial
interests, but also functioned as public
goods. And yet, the absence of an explicit
developmental goal imposed unevenness in the
way these assets were created.
The chapter will discuss the major fields of
infrastructure growth, beginning with a brief
look at the general motivation behind these
efforts.
THE IMPETUS
In the nineteenth century, the main focus
of productive investment by the state was
irrigation, railways, roads, and the telegraph.
The pre-existing transport infrastructure
of India was backward, given the size and
geographical diversity of the land. For
example, the road system that the Company
had inherited was primitive. The problem
of moving goods in bulk worried business
interests, and moving troops concerned
the government. Britain was the pioneer
manufacturer and user of the nineteenth
century transportation and communication
technologies. Their extension in India was in
some sense a logical outcome of colonialism.
The knowledge and the capital to build
railways or the telegraph were more cheaply
available to India than to the rest of the
non-Western world of that time. Famines in
the nineteenth century demonstrated the
vulnerability of the people to harvest shocks.
The means to reduce such vulnerability were
irrigation to raise cropping intensity, railways
to distribute food quickly between surplus
and deficit regions, and construction of public
works where famine-hit people could come
to work for wages. Public construction, in this

way, became bound up with the idea of
welfare.
That being said, the role of a few key
individual administrators in supplying a big
push to the public goods project cannot be
overlooked. Three of these deserve special
mention. The first was the Lord Dalhousie
(184856), who in his dual capacity as the
Governor-General of India and Governor of
Bengal, and through his legendary capacity for
hard work, a firm belief that colonial rule had
a modernizing mission, and his overbearing
personality, wrought much good and much
bad as well. Dalhousie established the Public
Works Department (1854), and initiated
moves to set up a railway and a telegraph
system. On the other side, his rule saw wars
with the Afghans, the Sikhs, in Burma, and
the annexation of Awadhcontributing to
the outrage that burst forth in the rebellion
of 1857. His successor, and the first holder of
the title Viceroy, Charles Canning (185662),
continued with the modernizing mission,
while also dealing with the financial strains
left by Dalhousies various military and
modernizing adventures. History remembers
him for a different reason; namely, steps taken
to calm the nerves of angry Indians and angry
Britons in the aftermath of the rebellion. The
third figure in the set was Charles Wood, who
served as president of the Board of Control
and held the equivalent position of secretary
of state for a considerable length of time
(18535, 185966). The most important
decisionmaker at the London end of the
administration, Wood was instrumental in
formulating governance procedures and
constitutions, and also oversaw a continuity
of the public goods policy initiated before the
mutiny. The single most important decision
made during his administration was the
Education Despatch, also known as Woods
Despatch, which set out the plan for grants-in-
infrastructure 235
aid schools and three universities in India. The
policy of state aid, outlined in the document,
was to remain in force for the next several
decades. Though subsequent developments
belied Woods hope of delivering a boost to
primary education, his hope of laying a strong
foundation for university education was
fulfilled.1
By the interwar period, the drive to create
physical infrastructure had spent itself due to
fiscal pressure, whereas popular demand for
welfare expenditure increased (Chapter 10).
IRRIGATION
Continuing from where the story ended in
Chapter 2, major new irrigation projects from
the late nineteenth century consisted of canals
taken out of perennial rivers (in Punjab, Sind,
and United Provinces), and weirs constructed
on major rivers (south India). The economic
and environmental effects of canals differed,
depending somewhat on the nature of the
canal and initial resource endowment. These
differences form a major theme of scholarly
debate and controversy. The Punjab canals
spread access to water over formerly water-
scarce territories, in contrast with canals in
south India that mainly redistributed monsoon
water, and with canals in the UP that added
surface water in a region well endowed in
groundwater. Overall, the acreage irrigated as
percentage of cropped area increased from 56
per cent in the early nineteenth century to 22
per cent in 1938. Government canals irrigated
about 60 per cent of the addition to irrigated
area. Among the largest projects undertaken
were the Krishna and Godavari delta systems
(1868) together serving close to a million
hectares, the Western Yamuna canal system
(1892, half-a-million hectares), Sirhind canal
(1887, one million hectares), Cauvery delta
system (1889, 425,000 hectares), Upper and
236 economic history of india
Lower Ganga canals (185478, 1.3 million
hectares), and Sarda canal (1926, about half-
a-million hectares). Smaller works that had
considerable localized impact included the
Sone Canal (1879), the Nira Valley System
(1938), the Mettur Project (1934), and the
Upper Bari Doab Canal (1879).
The most dramatic effect of the Punjab type
of canals was the colonization of vast areas
of wastes and pastures by migrant cultivators.
Among the earliest canals constructed was the
Bari Doab (185060). This canal irrigated
the doab between the Beas and Ravi, the
immediate motivation to start this canal was to
give employment to disbanded Sikh soldiers.
Sirhind Canal (186987), was constructed
on the left bank of the Sutlej, the headworks
being located at Ropar. The canal irrigated
lands in Ferozepur and Ludhiana, and the
princely states of Jind, Patiala, and Nabha.
The canal was a major source of prosperity of
Ludhiana town. The Western Jumna Canal was
a restored older work, which once irrigated
lands around Karnal and Delhi. The Chenab
Canal (operational in 1887) was constructed
to irrigate the arid Barr region located in the
Rechna Doab between the Chenab and Ravi
rivers. The Chenab Colony, among the most
successful settlements, was formed out of the
three adjacent districts of Gujranwala, Jhang,
and Montgomery in 1892, and contained
in 1901 a population of 791,861. The canal
irrigated an area of more than 20 million acres.
The principal town in the Chenab colony
was Lyallpur, named after Charles James
Lyall, lieutenant-governor of Punjab 188792
(see Chapter 4, for a discussion of the canal
colonies).
In the regime of the East India Company,
canal construction was left to the engineering
department of the army. Canals were later
entrusted to the Public Works Department.
For a few years after the mutiny ended and
Crown rule began, the department was busy
with army and administrative constructions.
But a discussion started almost immediately
on its long-term goals, and it was agreed,
by authorities in India and in London, that
irrigation was going to remain one of the
priorities of state policy. It was at this time that
the first statement of an irrigation policy was
made in a series of official writings. A broad
distinction was made between those works
that were built for purely administrative or
famine relief purposes (later named protective
works), and those built to increase agricultural
production (later called productive works).
The former class was not expected to yield
an income, though they might save the
government money that would have to be
spent on famine relief if a famine occurred.
The latter class could be commercially
profitable for the government. That irrigation
works could be remunerative in both these
senses, as money saved and money made, had
already been demonstrated by a number of
major works. For works that were too costly
to be financed by the current revenue of the
government, and which therefore needed loans
to be raised in London, it was essential that the
projects did yield at least the interest on these
loans.
What did this yield consist of? Irrigation
can raise the productivity of land, and
therefore, the income of the cultivators. The
water that raised incomes was charged at a
certain rate paid out of that income. This tax
accrued to the Public Works Department, and
was calculated in the rate of return on capital
invested in irrigation projects. However, for
such projects that had come up much before
the Department itself no proper calculation
of increased income or rate of return was
possible. On the other hand, increased
income from a plot of land also increased the
rental value of that land. Land revenue was

supposed to reflect the rental value. In areas
not permanently settled the government could
realize this value. In ryotwari areas irrigated
land was charged higher land revenue. Again,
no exact calculation was possible of how much
the rental value of land would increase due to
irrigation. Nevertheless, from time-to-time,
land revenue on account of irrigation was
estimated as the indirect return on irrigation
projects.
The question of what monetary returns
the irrigation schemes generated for
the government was, thus, shrouded in
speculation. The calculated rates of return
varied widely between projects and regions.
They also varied depending on whether the
revenue generated and/or interest payments
were added to the calculations. For the
government to spend money on large projects
with doubtful return was never favoured by
those who decided Indian policy in London.
In 1878, the Select Committee on East
IndiaPublic Works stated that large-scale
irrigation projects were by and large a failure
both commercially and in preventing famines.
Almost at the same time, the 1880s Famine
Commission gave a more informed and
balanced picture of irrigation projects. The
Commission concluded that irrigation projects
were on balance profitable for the government,
yielding about 6 per cent on capital, but
only after the land revenue collected was
considered.
Major works in Madras, on the Godavary
and Cauvery deltas, yielded good returns.
Works in Sind were also profitable. The
overall return on works in north India was
positive but not large. Ill-conceived projects in
Bengal, Orissa, and Deccan yielded negative
returns. Some of these projects were first
constructed by private companies for rates of
return guaranteed by the government, similar
to the agreement for railway construction.
infrastructure 237
The government later purchased them
at unjustifiably high prices. Generally in
irrigation policy there was a powerful opinion
against private enterprise. It was felt that
involving the private sector in water supply
would complicate the question of property
rights in water.
Partly at least, variability in the rate of
return reflected the type of projects and, in
turn, the topography of different regions. If
the Companys works in south India were
generally well paying, one of the biggest new
projects taken up in north India, the Ganges
Canal, was running at a loss in the 1860s. It
was found that the main reason behind this
difference was the topography of Madras,
which allowed the construction of simple
low-cost low-height barrages on shallow
riverbeds in order to irrigate large areas. The
canals in such a system could also be used for
navigation during lean seasons. In north India,
on the other hand, irrigation over a large area
required extensive masonry work and many
more bridges. And canal navigation was not a
source of revenue as road traffic was already
quite developed in the region.
The non-monetary returns of irrigation
projects, such as famine relief or increased
prosperity for cultivators were also mixed.
Canal-irrigated area as a percentage of cropped
area was not too different between Madras and
Punjab in 1900. Yet, Madras suffered far more
from famines. Canals as such did not prevent
water scarcity in the dry months if the region
suffered from a general shortage of rain. In
other words, the natural supply of water and
the capacity of canals to prevent famines were
correlated. In several parts of the canal-served
agrarian countryside, there were dramatic
improvements in the wealth and income of the
people. But the human and economic costs of
these extensive projects were also large. These
costs occurred due to a persistent engineering
238 economic history of india
defect, namely poor drainage of excess water.
The consequences in north India were saline
deposits in certain parts, and an increase in
malaria in others. The authorities knew that
these costs were present, but felt that the
overall return justified them.
On the net effects of canal irrigation,
there is a difference of opinion between
two contributors on the subject. Elizabeth
Whitcomb and Ian Stone have both studied
the GangaJumna Doab.2 There is no dispute
that canal irrigation turned near-desert
wastelands in Sind and Punjab into cultivable
land, with huge benefits accruing to the
peasants and landlords in these regions. But
these were initially water-scarce regions. The
UP Doab, on the other hand, was different.
It was a relatively flat plain hemmed in by
major rivers. It had a high water table already
exploited through well irrigation. Here, the
effects of canals were more mixed and more
controversial. Whitcombe argues that the
environmental effects were on balance adverse
for cultivation. In this tract canals tended to
spread water and block natural drainage routes,
causing waterlogging. The excess saturation
led to saline deposits, called reh, which made
large tracts less fertile. It also worsened the
incidence of malaria. As for cultivation, the
canals induced a bias for cash crops which
reduced self-sufficiency in food. The canals,
compared to the wells, encouraged over
cropping and attracted the formerly pastoral
groups to cultivate. As a result the quality of
livestock declined. Cash requirements to pay
for the use of canals, enhanced rentals, and
changes in composition of crops, contributed
to increasing rural inequality.
Whitcombes work anticipated themes in
environmental history more than a decade
before the discipline arrived in South Asia.
While the environmental distortions cannot
be disputed, the effects of canals on private
profitability remain controversial. In a more
detailed study of irrigation upon the regional
economy, Stone argues that the canals had
significant direct and spillover benefits. Canals
enabled rise in yield per acre, reduced the
impact of harvest fluctuations, raised average
living standards, and encouraged limited
industrialization, especially sugar refining.
However, contrary to official expectation,
canal water was distributed unevenly among
peasants. Its actual distribution had much to
do with local social and political structures that
the colonial state was too weak to change.
RAILWAYS
Until the mid-nineteenth century, the
common systems of long-distance
transportation of cargo were pack animals
and small sailing vessels on navigable rivers.
The nomadic Banjaras drove large trains of
pack animals on roads that connected western
India with eastern and northern. For short-
distance trade and travel, the common means
of transportation were palanquins, small river
crafts, and bullock carts. The older systems of
long-distance trade required a lot of labour and
time. The railways destroyed them without
much resistance. By contrast with the railways,
the government paid less attention to short-
distance travel, so in that sphere, boats, carts,
and palanquins survived until well after 1947.
In the 1840s, there was a vigorous campaign
for railways by the City of London, which
was the principal financier of railways in
Britain, and by business communities in
London, Liverpool, Calcutta, Bombay, and
Madras. In 1849, the Cabinet, the Company
and the promoters agreed to establish two
experimental lines, one connecting Bombay
with the Deccan cotton zones, and the other
connecting Calcutta with the Burdwan
coalfields. From the beginning, two principles

were accepted. First, the railways would be
constructed by private enterprise on a 99-year
lease, with the Government of India having the
option to purchase the lines after 25 years. And
second, the government, from its own budget,
would guarantee a 5 per cent return on capital
where a company failed to earn a minimum of
5 per cent return. In exchange, the government
exercised supervisory and advisory powers
on railway development and administration.
Once the contract was agreed upon, railway
development began in earnest, with capital
raised in Britain. Between 1853 and 1870,
more than 4000 miles of lines were opened,
between 1870 and 1883, 6000 more were
added, between 1883 and 1925, 15,000 miles
of railway track were laid.
The principle of railway construction went
through four stages: 184969 saw only private
enterprise, 187080 saw the accent shifting
towards state enterprise, from 18811924
recourse was again had to private enterprise in
management with state ownership, and from
1924 onward the state assumed ownership as
well as control.
By the end of the first stage, Calcutta,
Bombay, Madras, and Delhi had become
interconnected by the broad-gauge system (the
Indian broad-gauge was 5 feet 6 inches wide).
While the growth of the railways in terms of
lines, freight carried and passengers carried
was impressive, in 1870, none of the lines
earned 5 per cent return, with the exception of
the East India Railway running the profitable
CalcuttaDelhi line. It was also felt that the
railway companies did not try hard enough
to earn profits, given the guarantee clause. In
the last quarter of the nineteenth century, the
fiscal burden became too heavy to bear due to
the depreciation of the rupee, and the rise in
interest rates on government borrowing abroad
to pay for guarantees. There was a proposal
to purchase the railways, but the secretary
infrastructure 239
of state in London preferred instead to
renegotiate terms with the private companies,
while agreeing to direct state investment in
future railway construction. The first major
meter-gauge lines (3.33 feet wide) were a
product of direct state investment. The new
state railway lines were well constructed and
potentially more profitable, but these became
a fiscal burden at a time when India faced a
famine (18768). Between 1879, when the
25-year period of exclusive private ownership
ended, and 1924, the ownership of the
railway companies was in public hands. The
Government paid off, or guaranteed return to
the old shareholders. However, management
remained in the hands of the old companies,
with the condition that the managers would
not be able to undertake capital expenditure
without consent of the government.
This dualistic system led to
undercapitalization of the railways. At the
same time, there were perennial problems of
inefficiency generated by the guarantee clause.
The companies, right from the early days,
charged high rates for a small volume of traffic
and never felt the need to enter into price
competition. Consequently, a great deal of the
potential benefits of the railways remained
unutilized. There were other problems too,
such as, shortage of wagons, and in turn,
persistent uncertainty about shipment dates.
With public opinion in Britain and India
turning against private management, railways
came under full government ownership
and control in 1924. The network had by
then become one of the worlds largest,
and yet it had also failed to some extent, to
fulfill its potential to serve as a truly mass
transportation system.
Between 1860 and 1940, total route miles
had increased from 838 to 41,852. Route
miles per 1000 square mile increased from
0.526, route miles per million persons
240 economic history of india
increased from 3107. Passengers carried by
the railways increased from 48 million in 1880
to 604 million in 1940. Clearly, the railways
had revolutionized the mobility of people and
goods in South Asia (see Table 9.1 for more
data).
Through the nineteenth century, the
railways replaced many forms of indigenous
bulk transport, chiefly boats and bullock-trains.
And yet, the triumph of the railways over pack
bullocks and boats did not happen suddenly.
In fact, the railways were not necessarily more
competitive in relation to boats in regions where
the two plied side-by-side on relatively shorter
routes. In the first few years of its operation
in northern India, the railways met with stiff
competition from the Ganges boatmen. They
cut rates, which, together with the railways
policy of charging high rates for freights,
enabled the boatmen to continue. By the
1880s, however, the railways had won.
The economic effects of the railways can
be classified into two types. First, the railways
had significant forward and backward linkages
with other sectors of the economy. Railway
construction worldwide stimulated the
engineering industry, financial markets, and
the labour markets. In India, the first of these
three effects was relatively weak until World
War I. Till then, nearly all of railway material
Table 9.1 Selected Railway Statistics, 18601940
1860
Total Route Miles 838
Route miles per 000 sq miles 0.53
Route miles per m persons 3.4
Passengers carried (m) n.a.
Goods carried (m net tons) n.a.
Employment in railways 16789
Source: M.D. Morris and C.B. Dudley, Selected Railway Statistics for the Indian Subcontinent (India, Pakistan and
Bangladesh), 1853194647, Artha Vijnana, 17(3), 1975, pp. 187298.
was imported from Britain. The government
had built railway workshops for repair and
production of parts. But they were not
intensively used. Coal mining was perhaps the
only major example of the backward linkage
of the railways. After the War, a progressive
Indianization began to occur. The role of the
railways as a major source of demand for the
basic metal industries increased thereafter.
The spillover of the railways upon the capital
market was small too, since the major part
of the capital came from London. The effect
on stimulating a labour market was of greater
importance. By 1947, the Indian railways were
the largest employer in the organized sector,
a distinction maintained today. And railways
facilitated the major channels of internal
labour migration.
Second, there was a great reduction in
average transportation costs measured in
money and time (Table 9.2). Import and
export trades in real terms increased enormously
as a result of this reduction. Because these
costs became a smaller part of the price, the
supply of goods now responded to narrower
differences between local and world prices than
before. Raw cotton, and hide and skin exports
quickly expanded owing to this. Railways also
facilitated integration of markets. This is evident
from declining regional variability in prices of
1880 1900 1920 1940
8995 23627 35406 41852
5.69 14.94 22.39 25.96
35.0 82.9 115.9 107.0
48 166 524 604
n.a. n.a. 86 129
154108 338041 727184 1046843

Table 9.2 Average Transportation Charges (per maund mile)
Carriage capacity
Pack bullock 2 mds
2-bullock cart 20 mds
4-bullock cart 40 mds
River boat 1001000 mds
(upstream)
(downstream)
Steamboat n.a.
Railway train 35007500mds
Source: I. Derbyshire, Economic Change and the Railways in Northern India, 18601914, MAS, 21(3), 1987, pp.
52145.
foodgrains. In other words, the railways did
have a significant effect on commodity market
integration. A section of the Indian nationalists
alleged that by increasing the supply response
of grain to the world market prices, the railways
intensified local shortages of food during the
late nineteenth century famines. However,
careful research more recently has attributed
the remarkable let-up in the incidence of
famines after 1900 to easier interregional crop
movements that the railways made possible.
ROADS AND INLAND WATERWAYS
A systematic history of roads and road
transport remains to be written. From the
little research available on the nature of long-
distance trade before the British came to
India, it is fair to conclude that good and safe
roads were a scarce resource in pre-colonial
and early colonial India. At least partly,
the poor condition of the roads reflected
limited engineering capability in bridging the
numerous rivers. The Company restored and
constructed some major roads for military
purposes. But regular allocation of funds for
roads did not begin until the 1830s.
Early nineteenth century examples of travel
and cargo transport illustrate well the huge
cost of road carriage. There were no metalled
infrastructure 241
1840s and 1850s 1870s 1900s
2.5 pies n.a. n.a.
1.0 pies n.a. 1.75 pies
0.8 pies n.a. 1.25 pies
0.4 pies n.a. n.a.
0.25 pies 0.15 pies n.a.
0.65 pies 0.24 pies n.a.
n.a. 0.35 pies 0.18 pies
roads, writes one historian of the overland
grain trade in the western Gangetic plains, and
the only carriers were the Banjaras. That the
movements of grains so carried were small we
can see by the very considerable difference in
prices ruling in adjoining districts.3 During an
1804 famine in the Doab, wheat sold in Aligarh
at three times the price prevailing in Bareilly,
less than a hundred miles away, and yet the
cost of transporting wheat from Bareilly was
so great and the quantities so small that the
starving population of Aligarh had to wait for
grain carried upstream by the Ganges from
places 600 miles away. In the western Deccan,
road transport not only took a long time but
also involved wastages. The transport from
the fields to the port in Bombay, a distance
of 300 miles, took two to three months to
cover in bullock carts. The bullocks of one
cart had their muzzles buried in the cargo of
the cart in front, eating the cotton. The cargo
was adulterated with dirt and other mixtures
to make-up for the wastages. In the central
Indian uplands, especially the region between
Mandla and Jabalpur which was strategic for its
location in the middle of India, dense forests
and the fear of tigers made it impossible to
travel for all but the largest parties.
In some of these cases, railways solved
the problem. Investment in roads in general,
242 economic history of india
however, continued to be a relatively low
priority. Road length grew at a much slower
pace than the railways. In 1931, the length of
metalled roads as a ratio of population (1000
persons) was as low as 0.4. For a comparison,
the ratio was above 1 in much of contemporary
developing Asia (1.5 in Ceylon and 2.2 in
Malaya). If the public works in colonial India
were biased in favour of the railways at the
cost of roads, there were three factors working
behind this bias. First, road construction
was considered too costly given the terrain,
the rivers, and the high repair costs due to
the monsoons. Second, roads brought the
government no monetary return whereas
the railways did.4 The government did not
seriously explore involving private enterprise
in constructing a network of tolled roads.
Third, the lobbies such as the Lancashire mills
that pushed the government into investment
in modern transportation wanted cheaper
long-distance bulk carriage. It could be said
that the priorities of public investment in
transportation increased inequalities between
long-distance and local trade. There was
increasing inequality also between places
located on the railways and those located at
a distance from them, because the road link
between places located far away from the
railways and the nearest station continued to
be poor.
In northern and eastern India, and
sporadically elsewhere, the navigable rivers
had always been the means of transportation
of cargo (see Figure 9.1). River traffic was
cheaper than roads, and carried larger
volumes per head. But the role of rivers in
long-distance trade was more or less confined
to the Gangetic plains. The main traffic
here connected Bengal with western and
northern India via Mirzapur. Cargo went
along the Ganges up to Mirzapur, and then
was carried overland more or less along the
current BombayAgra railway line down
south. This traffic was of great antiquity. It
is known to have declined in the nineteenth
century in competition with the railways. In
one sphere, however, river transportation ruled
unchallenged until 1947, and that was the
traffic between Bengal and Assam. Steamboats
on the Brahmaputra were the crucial means
of transporting tea and garden workers. In
the preceding century, railway links were
developed, but these remained feeders to the
river highway. It was only after the Partition in
1947 that a direct rail connection was opened
(the Assam link in 1949) between Calcutta
and Gauhati. Generally speaking in eastern
Bengal and Assam, a transportation system
developed in which rail, road, and boats served
each other rather than being in competition.
PORTS
The ports that carried the bulk of the foreign
trade in the colonial period were new sites
where railways and modern harbours
converged, for example, Bombay, Madras,
Calcutta, Karachi, and Rangoon. Each served
as an export outlet for the products of a vast
hinterland. The two western Indian ports
enhanced their trade manifold with the
American Civil War (1865) and the opening
of the Suez Canal (1869). Thereafter, Calcutta
and Bombay also grew to become industrial
centres. World War I, while upsetting private
business through these ports, emphasized
their military importance. Bombay docks saw
a modernization drive in the early interwar
period.
These modern hubs of maritime trade did
not begin with a well-developed infrastructure.
Indeed, their nineteenth century history
demonstrates the great indifference of the
local government, the public works, and
even the merchant marine towards spending
 infrastructure 243

Figure 9.1 Grain Boats being Unloaded in Alipore, Calcutta, c. 185070

(photographer Francis Frith)
Rivers and canals were extensively used to transport commodities in the lower Bengal delta. The country boats shown
in the picture were good for the smaller channels of water, many of which had enough water and became interconnected
after the monsoons.
Courtesy: Piyal Kundu and http://oldindianphotos.blogspot.com/

money on reliable infrastructure. For example,
even as maritime traffic in Calcutta increased
fourfold between 1833 and 1863, the port
lacked all-weather and deep-water docks with
up-to-date systems of loading and discharging
ships, that is, wharves, jetties, landing stages,
steam or hydraulic cranes. The look of the
harbour had not changed since the eighteenth
century. Much of the harder work was done
with the help of low-wage workers. This state
of things received a rude jolt in the devastating
1864 cyclone in Calcutta when ships were torn
from their moorings and tossed around in the
floodwaters like toys before their wrecks were
parked in the heart of the European districts of
the city. A few months after the 1864 cyclone,
the merchants of Calcutta issued a report
harshly critical of the port, and serious efforts
to build a modern dock began only after this
shock.5
POSTS AND TELEGRAPH
The foundations for a government postal
system were in place before 1858. But it
became a widely used utility only in the late
244 economic history of india
nineteenth century. The process was led partly
by the opening of post offices in semi-rural
areas. More than that factor, it was driven by
the demand for the services of the post office.
Migration and money orders, for example,
were closely interdependent. In safety, cost,
and wide reach, nothing like the postal money
order existed in pre-British periods for the
remittance of individual savings within India.
Already in 1849 the Company had decided
to construct a telegraph system along with
the railways beside the railway lines. The
telegraph became an urgent necessity on
account of tensions on Indias western frontier
(the Afghan war) and the eastern frontier
(the impending war with Burma). The first
line between Calcutta and Diamond Harbour
opened in 1851 and was immediately used
to send shipping news from the coasts to
Calcutta. The major lines were completed
before 1855. The remarkable speed owed
to strategic needs and to Lord Dalhousies
personal interest in the scheme.
The telegraph was a private enterprise in
England and America and a state enterprise
in continental Europe. In India it turned out
to be a state enterprise for military reasons,
despite Dalhousies general aversion to state
monopolies. By 1857, the telegraph had shown
itself to be an indispensable military tool in
Table 9.3 Selected Statistics of Posts and Telegraph, 185838
1858
Number of letters, newspapers, packets, parcels
received (m) n.a.
Inland money orders paid (Rs m) n.a.
Paid telegraphic messages sent (value in Rs m)
Government 0.20
Private 0.18
Foreign
Total 0.38
Source: Statistical Abstracts for British India, Calcutta, various years.
Note: *The telegraph data in the last column relate to 19367.
a number of conflicts, rebellions and wars of
annexation that distinguished Dalhousies
reign. Consequently, the mutineers saw it as a
symbol of evil in 1857. With vengeance, they
destroyed telegraph establishments wherever
they could, and to their detriment, never used it
to communicate amongst themselves. As they
began to retreat, the restored telegraph lines
became powerful tools of combat in the hands
of the government troops. With this lesson
behind it, the beginning of Crown rule saw
a massive expansion of the telegraph system
both within the country and between India
and Europe. From then onward, the economic
and private uses of the telegraphs began to
overwhelm strategic needs, leading to rapid
growth in the usage of the system (Table 9.3).
POWER
Electricity generation in colonial India saw
significant privatepublic coexistence and
cooperation. By contrast, in the period after
1947, there was a decisive turn towards state
monopoly.
The first private firm to produce electricity
for Calcutta city was proposed in 1891. In
the next 10 years, legislation laid down the
basic framework of regulation. Electricity was
first introduced in 1897 by a small firm in the
1891 1921 19389
347 1422 1241
164 789 808
1.45 2.97 1.63*
2.70 17.50 14.40*
1.54 5.87 3.85*
5.69 26.34 19.88*

Darjeeling Municipality utilizing a mountain
stream. Two years later, the Calcutta Electricity
Supply Undertaking started producing
electricity with steam power. Two other large
hydroelectric projects came up before World
War I: The Sivasamudram on the Cauvery
erected by the Mysore government, and the
Khopoli plant of Tata Electric Power. The
former supplied power to the Kolar gold
mines, and the latter to Bombay city. The
report of the Indian Industrial Commission
(1918) laid great emphasis on the need for
organized exploitation of natural resources,
including hydroelectric power. However,
efforts in this direction had to wait until the
mid-1920s, when the provinces recovered
from the initial trauma of dyarchy, and
pursued some of their now exclusive duties,
electricity generation. In the interwar period
a large number of hydroelectric and thermal
power units started, many of these in the
territories of the princely states. In 1947, the
installed capacity stood at 1.7 million k.w.
THE LEGAL SYSTEM
Continuing on from Chapter 2, the second
half of the nineteenth century can be
characterized as a period when legislation
progressively departed from the commitment
it earlier had towards indigenous religious
codes, and increased the scope of laws framed
after European precedence and governing
economic transactions. Especially in the
sphere of commercial contracts, departures
were made from references to Indian custom,
precedence, and common law. This radical
principle was extended to trusts, transfer of
property, promissory notes, evidence, wills
and probates, and specific relief, all of which
were codified in one major thrust that took
place between 1870 and 1890, and all of
which drew upon English rather than Indian
infrastructure 245
precedence. At the same time, property rights
over land and other assets continued to be
shaped by custom or the understanding of
custom, which at times bogged the judiciary
in conflicting interpretations and claims over
what a valid custom was.
As we have seen (Chapter 2), the provincial
judicature in the early nineteenth century
consisted of a hierarchy of courts, which
practiced a mixture of Indian and English law,
whereas in the Presidency towns, the Supreme
Courts practiced English law. From 1862,
the tiered courts system of the pre-Mutiny
era ended, and a unified system of courts
was established. The system of provincial
and Presidency town courts was merged.
High Courts were established in the three
Presidency towns. Between 1886 and 1919,
High Courts were established in Allahabad,
Patna, and Lahore. The segmentation in
judicature came to an end, and not surprisingly,
segmentation in law between English and
Indian traditions, became exposed to keener
criticism and more frequent disputation.
From the early days of the new regime,
vakils were admitted into practice in the High
Courts, thus greatly enhancing the prestige
of the Indian lawyers. The legal profession
came into its own with this move. Legal
practice from then onward saw entry of the
best minds into the profession. A formal
equality between Indian and European lawyers
was established. This equality was achieved
with the help of influential voices such as
that of Justice E.J. Trevelyan. The Indian Bar
Councils Act of 1926 created a system for
regulating the conduct and quality of the legal
agents. Legal education expanded in the last
thirty years of colonial rule. Law students in
universities numbered about 3000 in 1911,
and 9000 in 1949. But the supply was clearly
insufficient, for legal fees remained high, and
with luminaries like Motilal Nehru, C.R. Das,
246 economic history of india
or Pherozeshah Mehta, ran into hundreds of
thousands of rupees per month.
Looking at the evolution as a whole,
spanning both Company and Crown rule,
we observe the creation of a system that at
first tried and later slowly retreated from,
a dualist ideal where one set of laws would
apply to the Europeans and another to the
Indians. The assumption often entertained
by representatives of new institutional
economic history that indigenous law was
structurally inferior, cannot find much
support in Indian history. After all, India saw
great bursts of commercial enterprise using
its own institutional foundations. A bigger
institutional problem stemmed from the
fact that colonial law was deeply ambiguous
because of the contradictory goals of
preserving community custom and overriding
community custom. The colonial Indian legal
system provided a strong judiciary but had
to deal with legal ambiguities. There was,
moreover, divergence between the provinces
after 1857. Even as the imperial administration
on the whole favoured westernization in
law, the desire to preserve Indian custom
for political reasons had many adherents. In
Punjab, for example, there was a return to
consolidation of custom.
EDUCATION
Continuing on from Chapter 2, while
the indigenous school education tended
to become obsolete, the scale of the new
state-sponsored system seemed to recruit
relatively few students. Students of all levels
as proportion of total population increased
from 1.3 per cent in 1891 to 3.7 per cent in
1931, whereas the proportion of persons of
school-going age in total population was about
40 per cent in these dates. A number such as
this one was an improvement from the near
zero (Punjab), 8 (Bengal), 17 (Bombay), and
25 (Madras) that prevailed between 1825
and 1840 (see Chapter 2). But it was small
relative to international standards in this time.
Only a fifth of the students who started school
reached secondary levels.
Why was mass literacy so slow to develop in
British India? One obvious constraint derived
from the poverty of the state. The government
did not have the money to build a mass
education system that could accommodate
100 million children in 1931. But there were
also serious problems on the side of private
funding. Recent research has shown how the
dependence of private sponsorship of primary
education upon caste and community ties led
to massive under supply of primary schooling
in British India.6 Individuals who had the
resources to supply local schools were too slow
or unwilling to shed the biases that had long
confined education to only a few groups and to
the men within these groups. Public spending
increased, but increased relatively more in
provinces that delivered more taxes per head.
Western and southern India in this way ended
up spending more money on education than
did eastern India.7
Supply constraints did indeed exist.
But supply constraints do not explain why
education remained largely confined to a
small set of castes and communities, rather
than being rationed uniformly across all social
groups. Literacy rates and enrollment rates
had persistent caste and community biases.
Thus, the average literacy rate among the
Parsi was 79 per cent in 1931 (73 among Parsi
women), whereas the general literacy rate was
only 8.3 (2.3 for women). Among the Jains,
the literacy rate was 35 per cent (11 among
women). Literacy rates were similarly above
average for the upper-caste Hindus, principally,
Brahmin, Kayasth, and corresponding groups,
and among men than among women within

these groups. Politically, these groups were
not necessarily more powerful than, say, the
peasantry, to be able to manipulate entry
into schools in their favour. These patterns,
therefore, alert us to persistent rigidities on the
side of demand for education. Communities
differed in their perception of how valuable
education was for them, and why it was
valuable.
The historical pattern of demand for
education at all levels was biased towards
certain castes and communities because these
people had an inherited association with
literate services. Groups that had contact
with scribal professions, medicine, teaching,
and priesthood, in the pre-colonial times,
entered education, medicine, and public
administration in the colonial times. These
classes and castes eagerly used the new
schools and colleges, while other classes and
castes entered schools on a smaller scale, and
dropped out more readily. The correlation
between family history of literate services,
preference for service professions, and thus,
preference for education, was especially close
in the three port citiesMadras, Bombay,
and Calcutta. These choices continued to
play a role as late as the end of the twentieth
century, when, for example, certain castes
dominated recruitment into the newly growing
software services professions. These were the
same castes that had dominated the entry into
formal primary and secondary education, and
recruitment into literate professions, in the
nineteenth century.
These historical demand patterns created
an unusually lopsided education system
in India. Given that certain groups wanted
education for entry into the literate service
professions, those castes that dominated
primary schools usually also tended to move
into secondary schools and to complete
college. These groups formed a small share
infrastructure 247
of the population. Therefore, primary school
enrollment (as a share of the population
of children in the relevant age group) was
small in India relative to the corresponding
percentages in the other emerging economies
of the nineteenth century. On the other hand,
enrollment in higher education in India
seemed greater than in other countries at
comparable levels of development. Enrollment
in higher studies dropped away sharply in all
countries, including India. But it dropped away
to a relatively smaller extent in India, given
that a substantial number of the same people
who entered primary schools in India, stayed
on in the education system, and moved into
high school and colleges. The caste-based
profession-oriented demand for education,
therefore, imparted on the system what
appeared to be a bias for higher education.
A recent paper comparing long-run trends
in labour productivity in India and the UK
(18701970) explores the wider ramifications
of the demand for education. The paper
observes that, even as there was divergence
in productivity trends in agriculture and
the absence of any trend in manufacturing,
in the services there was a convergence in
productivity trends. The paper attributes
this convergence to the a long-standing bias
towards secondary and higher education in
the system of education, and the concentration
of educated workers in the services relative
to agriculture or manufacturing.8 The paper
rightly notes that this correlation between
higher private and public investment in
secondary education on the one hand, and
relatively rapid rise in productivity in the
services on the other, anticipated the services-
led growth of the Indian economy in evidence
in the recent times. The finding derives from
the historical pattern of demand for education
in India. The casteeducation link became
weaker in primary schools from the nineteenth
248 economic history of india
century, but remained quite close much longer
in higher education, presumably because the
castes that had formerly populated the literate
professions, and who still had their eyes
upon literate professions, commanded the
money and the motivation (not to mention
peer pressure) to complete primary school,
secondary school, college, and university
education.
It would, of course, be a mistake to explain
the historical roots of Indias service sector
development with reference to inelastic caste-
oriented demand for secondary education
alone. Those castes which wanted to join
the literate professions found in the British
Indian colleges and universities a particularly
congenial environment, for the content of
the education offered in these institutions
was relatively international, and suited the
cosmopolitan cultures and professions of the
three port cities.
The beginnings of university education
went back to the years immediately preceding
the Indian Mutiny (1857). Prominent
residents of Calcutta, both European and
Bengali, had signed a petition to start a
university in the city. However, financing such
an enterprise did not command universal
support. Nevertheless a university, governed in
the same way as the University of London was
started in Calcutta in 1854. The next year, two
more universities in Bombay and Madras were
contemplated. After 1857, institutionalization
of higher and technical education proceeded
faster, Indian exposure to Western science
became systematic and wider, there was
greater specialization, while institutions such
as the Survey of India and the Geological
Survey of India grew to be relatively large and
autonomous bodies. In 1880, there were 83
colleges, including medical and engineering
colleges, and 155 normal and technical
schools, with a combined student population
of 14,000. More than a third of these were
concentrated in Bengal.
It is well acknowledged that the intent to
start colleges and universities in India with
public money and initiative was far in advance
of what was later in evidence in colonial
territories, whether British or other European
powers. Yet, the development had two faces.
The import of a British model of college and
university education made their governance
structure rather cumbersome. Within the
university system, an excessive accent on
literary education, the desire to emulate British
precedence in all matters, poor development
of laboratories, and administrative confusion,
limited the usefulness of the university as a
vehicle for scientific research. On the more
positive side, the supply of university-educated
government officers was greatly facilitated,
thus aiding the expansion of the bureaucracy
and Indianizing it at the same time.
More usefully, a part of the British tradition
of scientific, engineering, and medical
research was transplanted to India. There
was agreement on a policy of transfer among
influential Indians and professional bodies in
Britain. When the Asiatic Society of Bengal
urged the government to provide facilities
for more teaching of the sciences, the British
Medical Journal endorsed the demand. In
scientific research, major developments
occurred in the fields of geographical surveys,
botany, geology, and meteorology. Medical
research too had many landmarks. Yet,
whenever applied research tried to exceed
its boundaries and venture into pure science,
funding tended to become scarce, and the
idea that pure sciences were best left to British
institutions was expressed.9
Another field of imperial bias concerned
the status of indigenous science, knowledge,
and institutions, which suffered neglect and
a decline in the new hierarchy of knowledge
 infrastructure 249

Box 9.1 Science and Empire

Science teaching and research spread worldwide with the expansion of modern European empires,
suggesting a link between politics and knowledge. The nature of the link is the subject of a rich
scholarship. Until recently, the global history of science assumed that modern science was a product of
Western reason; it developed in the West, and spread out to the rest of the world because it was seen as
useful by those who received the new knowledge. New developments in historical scholarship criticize
this diffusionist model.
The grounds for criticism are several. Science, it is pointed out, was not only useful, but also powerful;
it was a tool of empire. The nationalist school claims that Indians before colonial rule were, in scientific
attainments, equal to that of Europe, and that colonialism destroyed Indian knowledge, or at any rate
the memory of it. These ideas appeal to historians who argue, inspired by the writings of Edward Said,
that imperial knowledge was a tool of governance. Based on these critical approaches, a new perspective
suggests that the history of science in the non-Western world was a history of an encounter rather than
that of diffusion. When the Europeans came to the old worlds of Asia, they encountered indigenous
knowledge systems, and much of what transpired as colonial science was the outcome of an engagement
between transplanted and indigenous knowledge. In this view, the identification of modern science with
a geographical region is difficult, because similar ideas spring up in many places, ideas travel, and what we
understand today to be uniquely Western can be shown to have non-Western roots.
The new historiography of colonial science is too colonialism-centric, however. It is, in theoretical
intent and application, a history of empire rather than a history of knowledge formations. The
preoccupation with colonialism has a cost. It makes historians neglect a large and complex body of agents
who were also engaged with the scientific enterprise, and who were neither part of the imperial state,
nor directly affected by it. Colonial science was not only a tool of governance connected with grand
political designs, it was also a tool of business. Ordinary people, such as merchants, peasants, artisans,
industrialists, and consumers made utilitarian choices about the technologies they wanted, and these
choices influenced the unfolding pattern of education and research as deeply as did the imperatives of
governance. Economic theorists employ the word technology diffusion mainly in the sense of private
choice, which dimension of the word is ignored in the new history of science.
Science and technology were undoubtedly shaped by an encounter. But that encounter had an
economic, as well as a political side. The new history is obsessed with the political side. The history of
colonial science, notwithstanding a valuable contribution to the critique of Eurocentric history, runs the
risk of diminishing returns unless it can push imperialism out a little, and allow capitalism more room in
its own narratives.

Readings: Deepak Kumar, Science and Society in Colonial India: Exploring an Agenda, Social Scientist,
28(5/6), 2000, pp. 2446; Ashis Nandy, Science, Hegemony and Violence, New Delhi: Oxford University
Press, 1990; Gyan Prakash, Another Reason. Science and the Imagination of Modern India, Princeton:
Princeton University Press, 1999; Kapil Raj, Relocating Modern Science. Circulation and the Construction of
Knowledge in South Asia and Europe, 16501900. Palgrave Macmillan, Basingstoke, 2007; S. Irfan Habib
and Dhruv Raina (eds), Social History of Science in Colonial India, New Delhi: Oxford University Press,
2007; Tirthankar Roy, Knowledge and Divergence from the Perspective of Early Modern India, Journal
of Global History, 3(3), 2008, pp. 36187.
250 economic history of india
orders. The slightly lopsided development
of science in an imperial setting sets the
backdrop to a recent scholarship exploring the
relationship between science and empire (see
Box 9.1).
HEALTHCARE
Mortality rate was high in South Asia
before British rule. It began to come down
significantly after 1920 (Chapter 11). Three
types of government initiative contributed to
this decline. These were sanitation, medical
care, and famine prevention. The first two
initiatives began in the barracks. The stress
on sanitary reforms had a great deal to do
with the exceptionally high death rates in the
army. It was related with the growing sense
that communicable diseases like cholera,
smallpox, or plague thrived on poor water
supply, contaminated food, poor drainage,
poor sewage, and crowded living conditions.
Army death rates dropped dramatically in the
last quarter of the century with reforms in
these aspects.
The Indian Medical Service (IMS) had
begun as early as in 1764. It recruited health
professionals by means of a competitive
examination to which Indians were admitted
from 1853. The IMS was at first meant
to look after the troops. But its duties
gradually widened. Government hospitals
expanded rapidly from the third quarter of
the nineteenth century. Dispensaries also
increased. At first, mainly the Europeans and
Anglo-Indians used these institutions, which
were concentrated in the towns. Indians
rarely came to these places for treatment. For
the upper castes, they carried the image of
being impure places. The upper castes also
had access to the more effective forms of
traditional systems of medicine. When Indians
did begin to come to government hospitals,
a large proportion at first was of lower castes.
Gradually, however, prejudices against
government hospitals began to weaken. One
factor in this change of attitude was the latters
success in surgery.
From the 1860s (after the Royal
Commission on Sanitation submitted a
report in 1863), sanitary reforms began
to touch the civilian population and local
governments. Large municipal corporations
built hospitals staffed with European health
officers. Municipalities paid more attention to
pure water supply and proper sewage. Public
health offices became effective in dealing with
major outbreaks of communicable diseases, of
which three were especially virulent, malaria,
plague and smallpox. Great epidemics, such as
the plague epidemic that raged between 1896
and 1920, saw some early and rather drastic
implementation of the new ideas of how to
decontaminate affected habitats. Until the
middle of the interwar period, these measures
made little difference to the aggregate death
rates. Thereafter a steady decline in death
rates began to occur. The exact causes of the
decline cannot be clearly identified. Sanitation
and medical care had limited reach. Still, these
limited measures did contribute to the rarity
of epidemics after 1920. The other factor
behind the decline in death rates was the
low frequency and severity of famines in the
twentieth century (Chapter 11).
CONCLUSION
Infrastructure development was concentrated
in impact in certain regions and segments of
the population. It was uneven partly for the
reason that the state had definite priorities; for
example the spread of education was less of a
priority than defence. Developmental effort
was also uneven and at times limited in its
effectiveness because of a deliberate attempt to

mix tradition with modernization.
For example, a conspicuous feature of
the story of irrigation development is the
dependence on public spending, and the
consequently uneven effort. In principle, a
matching or compensatory private spending
effort could restore a more balanced
distribution of assets. Such compensating
investment was lacking in almost all cases
from irrigation, to education, to hospitals.
Why did the peasants themselves not spend
more money on irrigation? Poverty cannot
answer the question, for the peasants did
earn money and saved it in good agricultural
years. But they often saved in assets that did
not change hands much or convert easily into
investment (Chapter 3). Private calculation
and tradition, in other words, were not usually
conducive to risk-taking. In fact, they tended
to be risk-averse. Likewise, the rather poor
record in mass education had as much to do
with the failings of colonial policy as with the
force of indigenous tradition that did not value
universal education and restricted access to
certain within castes, communities, and to
males. In legal development again, India did
receive a firm institutional foundation from
colonial rulers, but it functioned in a context
of recreated tradition that made its practice
cumbersome.
One factor behind uneven spending
on infrastructure was the limited financial
capacity of the state. Government investment
was a declining proportion of national income
in the twentieth century. The difficulty of
raising taxes imposed a long-term constraint
on the budget. Expenditure commitments
were restrictive too (see Chapter 3 for a fuller
infrastructure 251
discussion). These hints at a constraint lead us
to take a closer look at the fiscal system.
NOTES
1. David J. Howlett, Ramsay, James Andrew Broun,
first marquess of Dalhousie (18121860), Oxford
Dictionary of National Biography, 2004, available at
http://www.oxforddnb.com/view/article/23088;
Thomas R. Metcalf, Canning, Charles John, Earl
Canning (18121862), Oxford Dictionary of National
Biography, 2004, available at http://www.oxforddnb.
com/view/article/4554; R.J. Moore, Sir Charles Woods
Indian Policy 185366, Manchester: Manchester
University Press, 1966.
2. E. Whitcombe, Irrigation, in Dharma Kumar
(ed.), The Cambridge Economic History of India, Volume
2 (CEHI 2), Cambridge: Cambridge University Press,
1983, pp. 677736; and Ian Stone, Canal Irrigation in
British India, Cambridge: Cambridge University Press,
1984, chapter 1.
3. T. Morison, The Instability of Prices in India
before 1861, Journal of Royal Statistical Society, 65, 1902,
pp. 51325.
4. Vera Anstey, The Economic Development of India,
London: Longmans Green, 1949 (Third Edition), p. 129.
5. Tirthankar Roy, State, Society and Market in
the aftermath of Natural Disasters in Colonial India:
A Preliminary Exploration, Indian Economic and Social
History Review (IESHR), 45(2), 2008, pp. 26194.
6. Latika Chaudhary, Determinants of Primary
Schooling in British India, Journal of Economic History
(JEH), 69(2), 2009, pp. 269302.
7. Chaudhary, Land Revenues, Schools and
Literacy: A Historical Examination of Public and
Private Funding of Education, IESHR, 47(2), 2010, pp.
179204.
8. Stephen Broadberry and Bishnupriya Gupta, The
Historical Roots of Indias Service-led Development:
A Sectoral Analysis of Anglo-Indian Productivity
Differences, 18702000, Explorations in Economic
History, 2009.
9. Deepak Kumar, Science and the Raj: 18571905,
New Delhi: Oxford University Press, 1995.
10
Fiscal and Monetary System
I ndian nationalists accused the colonial
rulers of pursuing fiscal and monetary
policies that benefited Britain and British
enterprise, and resisting those policies that
would have benefited India and Indian
enterprise.1 There is truth in the argument
that the British government had British
economic interests in mind while ruling India.
However, British interests and Indian interests
did not necessarily conflict. In the golden age
of globalization, that is, the pre-war half-a-
century, gains from trade and investment were
shared. As the British economy slowed in the
interwar period, the interests of Britain and
India increasingly came into conflict. Indian
politicians, including the colonial government
in Delhi, fought with London over greater
autonomy in policymaking, a demand that the
colonial administration in London conceded
after much wrangling.
In the long run, the developmental impact
of any state should depend on two things,
whether or not it considers development
to be one of its major goals, and whether or
not it has the financial capacity to pursue
developmental goals in addition to running an
administration. In both respects, the colonial
state was a weak agent, not only relative to the
other emerging economies of the nineteenth
century, imperial Russia and Meiji Japan for
example, but also in comparison with some of
the other tropical colonies. The British Indian
budget showed a rather high proportion of
spending on administration and defence, a
feature shared with Russia. The large territory
and the diversity of the territory had made
defence and governance of more critical
importance than development. On the other
hand, revenue per head in India was among
the lowest in the world, and relatively inelastic
over time, pushing the state to borrow often
and heavily. In the unfriendly world money
market of the interwar period, the state was
pushed close to bankruptcy.
The chapter discusses how the government
decided policies, the fiscal and monetary
systems that provided the context in which the
government functioned, and the framework

of policy in the major princely states. A
concluding section asks general questions
about the link between colonialism and
development. Was there a specifically colonial
element in these policies? Would India have
been better off with a different set of policies?
POLICYMAKING
Although British India began as a territory
governed by the East India Company, in 1784,
a Parliamentary Act had subordinated the
political affairs of the Company to a committee
set up by the Crown, known as the Board
of Control. The demarcation of politics and
economics, the Crown and the Company,
remained murky for a long time afterwards,
however, even as the issue of who controlled
India from London became progressively less
relevant with the increasing authority and
autonomy of the office of the governor-general
in India.
After 1858, Indian affairs were decided at
three levels. The first was the India Office at
London headed by a secretary of state who
was a member of the British cabinet. The
secretary was the counterpart of the president
of the Board of Control. The second was the
viceroy, counterpart of the governor-general
in the new rule, who headed the government
of India, seated in Calcutta until 1911 and
Delhi thereafter. The Viceroy decided policy
in consultation with a council, consisting of
members who specialized in law, military
affairs, and public works (see also Figure
10.1). At the third level were the provincial
governments headed usually by governors.
These three levels did not work in concert.
Their priorities were different. Trade,
exchange, and defence were of foremost
importance to London. Calcutta, on the
other hand, was relatively more concerned
fiscal and monetary system 253
with the public finances. Local issues of a
developmental or welfare nature engaged the
provinces most directly, but the provinces were
financially the weakest link in the system. If
and when British and Indian interests seemed
to conflict, these three levels at times took
different views. In the nineteenth century,
the India Office won some major battles. But
the balance tilted in favour of India in the
twentieth century. This discord was at the
heart of Indian policymaking.
TRADE POLICY
Until World War I, trade between India and
Britain was effectively free of tariffs. Conduct
of trade without regulation was an ideology
that many colonial administrators subscribed
to. The idea also served the exporters of
British manufactures. In this group belonged
the Lancashire mill owners. Any attempt
to impose or increase an import duty was
resisted by this lobby, for textiles formed the
main import by India from Britain, and India
was one of the important markets for British
textiles. India bought 30 per cent of British
textile export in 1865. On the issue of customs
duty, Indias financial interests represented by
the government in Calcutta, and the interests
of British exports exerting an influence on the
India Office in London were not in tune. Until
World War I, therefore, rates of import duty on
textiles were small. Such duties were removed
and reimposed from time-to-time, and were
partly offset by excise on competing goods
produced by the mills in Bombay.
During the war, Indias contribution to
the war effort was critical for London. After
the war, the government of Indias point of
view on the financial question could not be
ignored. Tariffs were a convenient way to raise
revenues at a time of strained finances. Indian
254 economic history of india

Figure 10.1 The Government of India in Session, c. 1875.

The picture shows a conference in progress in the Viceroys residence in Shimla. From left to right, William Muir
(financial member of the Governor-generals Council, a scholar of Islam, and educationist in India and Britain), Robert
Napier (army engineer, architect of the Jumna canal, and military member of the Council), Governor General Thomas
George Baring or Lord Northbrook (in office 18726, known for his liberal views, and pro-peasant stand), Arthur
Hobhouse (judge and law member of the Council), Henry Norman (military member of the Council), Ashley Eden
(administrator, at this time Commissioner of Burma), an unidentified man, and Alexander Arbuthnot (administrator,
and law member of the Council).
Getty Images.

sentiments in favour of industrialization were THE FISCAL SYSTEM

growing. And the influence of British business
on imperial policy was in decline. Japan had
emerged as a competitor of Britain in Asian
markets. These circumstances weakened
the resistance to customs tariffs. There was
steady and significant increase in average tariff
rates after 1920. The governments control
on the Indian exchange rate continued to be
controversial, however, a subject taken up
further on.
Poverty of the State
A study of the fiscal system provides a partial
answer as to why government investment
tended to be small. There were several
channels of leakage of potential funds
for investment. The most notorious was
government remittance. Given revenue,
a larger remittance would lead to lower

government expenditure within India, and
given a net receipt of sterling from abroad, a
larger remittance implied lower capacity to
import machinery and raw materials needed
by industry. The issue of remittance, however,
is shrouded in ambiguity. The adverse effects
of remittances would be limited the more
the remittances were legitimate payments for
services that contributed to GDP.
The more important reason behind the
poor and biased effort was the governments
limited resources. Tax per head and per unit
of GDP was much too low. Government
revenue as a proportion of GDP was 5 per
cent in India (average of 192030), 19 in the
UK and 29 in Japan. Government revenue per
head in India was about one-eightieth that in
Britain.2 Adjusted for differences in price level,
the British Indian tax per head would still be
no more than 58 per cent of the tax per head
in Britain. No wonder then that in respect
of nearly all vital public goods, the extent of
spending and usage was small in India. Even
in comparison with the tropical British and
French colonies in Asia, British India turns out
to be a rather poor government. Between 1920
and 1930, the government of the Federated
Malay States spent on average more than ten
times the money spent in British India per
head. That of Ceylon spent more than three
times, those of the Philippines and the Dutch
East Indies more than double, and those of
Siam (Thailand) and French Indochina 4050
per cent more.
A closer look at the public finance in
these countries suggests two reasons for this
poor effort. First, the heavy and persistent
dependence of the budget upon land tax,
together with the exceedingly low yield and
taxable capacity of landed wealth and income,
made the British Indian government one of the
poorest in the world. Second, the dependence
also made the budget unduly static. Elsewhere,
fiscal and monetary system 255
there was much larger usage of flexible sources
of revenue such as customs, excise and income
tax, whereas tax revenue in India came mainly
from inflexible sources, and as a proportion of
national income, remained small and almost
static at about 57 per cent.
Revenue and Expenditure
In discussing the structure of revenue and
expenditure, central and provincial data are
combined for simplicity. At any time in the
nineteenth century, the principal tax was
the land revenue. Fragmentary data show
that land revenue accounted for 8095 per
cent of total revenue in 180910 in the
provinces (Chapter 2).3 In 18589, land tax
yielded about half of total revenues (Table
10.1). Provincial statistics show quite large
variation in the pattern, predictably, with the
Permanent Settlement areas showing the least
dependence on land revenue (Table 10.2).
Next in importance were two commodity
taxes of a rather special nature. One was levied
on the export of opium, and the other on the
sale of salt. Together, the taxes on these two
items accounted for 24 per cent of revenues in
18589. More modern type of taxes such as
income tax, customs and excise accounted for
a small proportion of revenue (12 per cent in
18589). The tax system as a whole, therefore,
was regressive and income inelastic. A tax on
salt fell in equal extent on the rich and poor
alike, for both consumed the same quantity.
On the other hand, the limited reach of the
income tax left many prosperous people out
of the tax net. Land and salt tax were also
relatively income inelastic. That is, even as the
economy expanded, the revenues did not grow
automatically.
After World War I, the above pattern of
taxation changed. The importance of land tax
had decreased to about 20 per cent of revenue
256 economic history of india

Table 10.1 Sources of Gross Revenue by Presidency, 18556 (percentages)

Bengal North-western Madras Bombay Punjab British India

Provinces
Land revenue 35.6 79.9 68.9 57.5 73.5 55.5
Salt tax 8.3 8.8 10.2 5.6 15.7 8.6
Opium revenue 32.0 0.0 0.0 20.7 0.0 16.9
Post office and stamp duties 2.1 4.1 2.3 1.8 3.4 2.5
Customs 11.8 1.3 2.6 7.0 0.0 6.8

Total (including others) 100.0 100.0 100.0 100.0 100.0 100.0

Total in million pounds 13.0 6.3 5.3 5.0 1.3 30.8
Source: F. Hendricks, On the Statistics of Indian Revenue and Taxation, Journal of Royal Statistical Society, 21(3), 1858,
pp. 22396.

Table 10.2 Composition of Government Revenue and Expenditure, 1858, 1900, and the 1920s

18589 (revenue) 192030

19001 (expenditure) (average annual)
Per cent of total revenue
Customs 8 26
Land revenue 50 20
Salt and opium 24 neg.
Excise 4 17
Income tax 0.3 10
Per cent of total expenditure
Defence 22 34
Administration 24 11
Debt service 4 9
Public works 17 7
Education 2 6
Health 2 3
Sources: 18589 and 19001 data calculated in Dharma Kumar, The Fiscal System, in CEHI 2, pp. 90544, Tables
12.4 and 12.8. 192030 data calculated in Tirthankar Roy, The Role of the State in Initiating Development: A Study of
Interwar South and Southeast Asia, Indian Economic and Social History Review (IESHR), 33(4), 1996, pp. 373401.

in the 1920s. Land tax as a proportion of the
value of agricultural production declined
from possibly 10 per cent of net output in
the middle or early nineteenth century to
less than 5 per cent in the 1930s. The opium
tax became negligible and salt tax was a
smaller source than before. On the other
hand, income tax, customs and excise had
expanded their combined share to over 50 per
cent. A sustained campaign by associations
of landlords against taxation was one factor
behind the fall in the importance of land tax.
Tax in the permanent settlement areas was
a fixed nominal amount, and attempts to
change the system on financial grounds did
not succeed. Land tax in the ryotwari areas
fell upon the peasantry, whom administrators
often considered to be the bulwark of the
regime, politically speaking.
On the other hand, financial stringency
had forced the government to experiment
with customs and income tax from the

mid-nineteenth century. In this effort the
government could score some success only
in the interwar period. Like customs, income
tax again was the scene of a battle, if a more
subdued one. The government did not have
the machinery to implement a tax on self-
employed people. The groups that could be
more easily targeted and assessed were those
closest to the government. These were the
landlords, the government employees, and
owners of industrial firms, many of whom
were Europeans. Some of these groups stoutly
resisted being taxed. Over time, the groups
expanded, diversified, and their resistance to
taxation could not be sustained.
None of the experiments with new taxes
led to a significant rise in the taxGDP
ratio, which remained low and falling in the
interwar period. To the constraint of limited
revenue was added expenditure commitment
on defence, civil administration, and debt
service. About half of the home charges in the
pre-war years consisted of interest payment
on loans raised to finance construction of
railways and irrigation works. The item next in
importance was payment for the maintenance
of army and marines. A third component
was pension payments for officials who had
served in India and retired to Britain. India
Office expenses and stores purchased, formed
the other items of expenditure. In short, even
though the effect of direct war finance upon
the budget receded from the second decade of
the century (see Chapter 2 and Table 2.2), the
budget continued to be influenced by imperial
concerns of administrative and political
stability, leaving too little for spending upon
what would be seen today as developmental
heads.
Not more than 25 per cent of total
expenditure consisted of investment, that is,
went to the construction and repair of national
assets (Table 10.4). If we consider only net
fiscal and monetary system 257
investment, that is creation of new assets,
the percentage was smaller. Depreciation
accounted for about one-third of gross
investment in the pre-war period, and over half
of gross investment in the middle of the 1930s.
The percentage of investment in expenditure
fell quickly towards the end of the interwar
period, as debt service and administrative
commitments took increasing priority over
investment (Table 10.3). The major sectors
that saw capital expenditure were irrigation,
roads, railways and telegraphs (Table 10.5).
Increasingly from the interwar period,
investments under these heads went into
depreciation rather than new assets.
Investment in railways was regionally well
balanced in the long run. But investment
in irrigation, roads and power was quite
unevenly distributed. There was a correlation
between the initial inaccessibility of a region,
its size, and the share of the region in public
investment. Burma, for both reasons, was a
major recipient of funds. Within British India,
western and southern India received more
funds than did eastern and northern India. The
composition of public investment in northern
India was dominated by irrigation, whereas
that in western and southern India was more
balanced.
In the twentieth century, even as the
public works drive spent itself, the demand
Table 10.3 Gross Public Investment as a
Proportion of Public Expenditure,
18981938 (%)
Investment/Expenditure Ratio
18989 to 191314 23.5
191920 to 192930 23.4
19301 to 19378 15.7
Source: M.J.K. Thavaraj, Capital Formation in the Public
Sector in India: A Historical Study, 18981938, in V.K.R.V.
Rao (ed.), Papers on National Income and Allied Topics,
Delhi: Allied Publishers, 1962.
258 economic history of india

Table 10.4 Sector Composition of Public Investment, 18601946

18601 to 191819 191920 to 19467

m Rs % of total m Rs % of total
Irrigation 1227 22.6 1968 18.6
Roads 1570 23.7 2237 21.2
Power 0 0.0 199 1.9
Railways 3818 53.7 6168 58.3
Total of these 4 heads 6615 100.0 10572 100.0
Source: M.J.K. Thavaraj, Regional Imbalances and Public Investment in India (18601947), Social Scientist, 1(4),
1972, pp. 324.

Table 10.5 Regional Distribution of Public Investment in Irrigation, Roads, and Power,
18601946 (% of total)

Madras BombaySind Punjab UP Burma Bengal Others Total

18601 to 191819 16.6 15.5 8.8 8.8 24.0 6.9 19.2 100.0
191920 to 19467 16.2 21.7 11.9 1.8 21.9 5.8 20.7 100.0
Source: Thavaraj, Regional Imbalances.

for welfare expenditure gained strength. The
demand arose partly from the realization
that education was a means of social
advancement that had been neglected by
the colonial rulers. Partly, it was a result of
political decentralization after 1919 whereby
provincial budgets, responsible for education
and health, became more exposed to local
political pressures. High levels of illiteracy and
mortality showed that being a colony of Britain
for over half a century had done little to enable
India to approach British standards of social
development. The slight rise in the proportion
of public spending on education and health
in the interwar period (Table 10.3) reflects
an attempt to redress this neglect of social
infrastructure. The attempt, however, was a
limited one, given the governments poverty
and other expenditure commitments.
In the pre-war period, public investment
was mainly financed from public savings. Thus,
90 per cent of the average gross investment
was met out of the governments own surplus
of revenue over current expenditure. But in
the interwar period, the percentage dropped
to 65. Net increase in liability to meet public
investment rose from an average of 10 per
cent of investment in the pre-war period to
35. The increase in net debt contracted was
not a uniform one over time. The phases of
public debt flow can be set out roughly in the
following order:
18989 to 190607: small scale and net
decrease in liability
19078 to 190910: large scale and net
increase in liability
191011 to 191314: small scale and fall
191920 to 19312: consistently large and
positive increase
19323: large fall
In short, 190710 and 191931 were the
two major periods of rising indebtedness. The
later part of the 1930s saw net repayment.
Given the depressed economic conditions
 fiscal and monetary system 259

in the 1930s, the debtGDP ratio continued
to increase despite repayment, and became a
serious problem in the presence of increased
difficulties of financing debt (Table 10.6).
The Political and Institutional Context
Public finance was influenced by the federal
structure, and the economys exposure to risks.
During the Companys rule, the finances of
the three major presidencies were more or
less autonomous. But there was a tendency
to centralize control over finances. By 1882,
the basic structure of financial federalism was
well-established. The centre was responsible
for certain heads of revenue and certain
types of expenditure. The provinces were
responsible for some others. A few other
taxes were divided up between the centre and
the provinces. Customs, salt tax, opium tax,
railway income were the main revenues raised
by the centre. The provinces had full control
over receipts of provincial administrative
departments such as law and justice or
education. Land revenue and excise were
divided up. Only the centre could borrow.
As for expenditure, the centre looked after
defence whereas the provinces were in charge
of local administration, education, and health.
The system generated political tensions.
The basic grievance of the provinces was
that they had been given inflexible sources
of revenue, and yet were responsible for
expenditures that had to expand with the
growth of population and income. There were
great inequalities between the provinces in per
capita tax burden and per capita expenditure.
Provinces with Permanent Settlement
raised less revenue on average and spent
less. Provinces such as Bombay, or Madras
raised more on average and spent more. The
settlement pattern, however, was only one
determinant of these inequalities. There were
possibly others, which remain obscure.
The Government of India Acts of 1919
and 1935, and the legislative assemblies that
were created after the 1919 Act, restructured
federal finance and exposed it to organized
pressure from elected representatives. The
divided heads of revenue were abolished. Land
revenue was given over to the provinces. The
centre took the income tax. The central budget
now had to be balanced by contributions made
to the provinces, which added another bone
of contention. These changes did little to meet
the grievance of the provinces. The 1935 Act
went a little further in giving a larger share to
the provinces. The idea of a five yearly Finance
Commission to review the structure of federal
finance, an institution that continues today,
was another result of this Act (see also Table
10.7).

Table 10.6 Public Debt and DebtGDP Ratio

Debt (in million Rs) National Income (in million Rs) DebtGDP Ratio
1900 3.4 12.7 26.5
1910 4.5 18.0 24.9
1920 7.6 33.3 22.8
1930 10.1 25.9 39.0
1938 9.5 23.5 40.6
Source: State debt figures from Neil Charlesworth, The Problem of Government Finance in British India: Taxation,
Borrowing and the Allocation of Resources in the Interwar Period, MAS, 19(3), 1985, pp. 52148; national income
from S. Sivasubramonian, National Income of India in the Twentieth Century, New Delhi: Oxford University Press, 2000.
260 economic history of india
Table 10.7 Shares of the Centre and the Provinces in Gross Public Investment, 192037 (%)
Centre
19201 to 192930 56
19301 to 19378 46
Source: Thavaraj, Capital Formation in the Public Sector in India.
The government scrupulously balanced its
budget. That is, it balanced current revenue
with current expenditure. It did need to
borrow substantial sums in London mainly to
finance the construction of the railways and
irrigation. Many Indian economists criticized
these borrowings on the grounds that these
imposed a large debt service obligation, and
deprived India of a chance to stimulate its
own capital market by means of government
securities. The former charge is doubtful.
The capital receipts after all were spent on the
creation of assets. The latter charge has merit.
The balance between revenue and
expenditure tended to be upset by famines,
wars and depressions. The wars fought by
the Company and the uprising of 1857 left a
large burden of debt. The famines of 1876 and
1896 added to debt. These debts were paid
back from current revenues without serious
problem. The large increases in military
expenditure during World War I not only
forced the government to borrow, but since
the London market was no longer easy to
borrow from, the government was forced to
turn towards Indian sources. During none of
these episodes, was Indian creditworthiness in
question. The Great Depression, however, saw
a crisis in this respect. Political unrest and weak
exports reduced confidence abroad in Indian
securities. The government could in theory
devalue the rupee and stimulate the economy.
But such a step would have increased the value
of Indias net government remittance abroad.
Fearing that India would fail to meet this
Provinces Total (including municipalities and local
governments)
35 100
39 100
commitment, authorities in London prevailed
on India not to devalue but to cut expenditure
instead. The resultant massive contraction in
government expenditure intensified the effects
of the depression.
With World War II India was again faced
with a deficit situation. The government had
to spend much larger sums and proportions
of the budget on defence not only on its
own behalf, but also on behalf of Britains
war efforts on promise of repayment from
Britain later. While taxes and borrowings
increased, these were insufficient to cover
the deficit. India now had a central bank
and enjoyed more monetary autonomy than
before. Consequently, the money supply
increased to finance the deficit. The nominal
demand for goods expanded, but the supply
of essential goods, including foodgrains,
was diverted to the war effort. The net
effects were a massive inflation, erosion
of real incomes, and a fall in the burden of
private debt. During the Bengal famine of
1943, some half a million people died of
starvation and disease. The last days of the
war saw government control over supplies
of essential commodities. The food rations
were the precursor to the public distribution
system with which Independent India has
been so familiar. The end of the war also saw
a steady liquidation of Indias accumulated
foreign debt. This was a result of Britains
obligations to India on account of the war.
India, thus, entered Independence with a
large credit balance in sterling.

Fiscal Policy in the Princely States
A comprehensive history of the economic
policies of the princely states waits to be
written. Based on the limited research available
on the three largest states, Hyderabad, Mysore,
and Travancore, a few propositions can be
advanced.
First, the broad composition of public
expenditure and revenue in the states
conformed to that of British India. The land
tax dominated revenue in the nineteenth
century. Administration, including police,
justice and palace expenses, took away a
large proportion of the expenditure. For
example, in Mysore during 1905 and 1910,
these heads accounted for over half of public
expenditure. Second, the structure of revenue
and expenditure changed in the same direction
as in British India from the last quarter of
the nineteenth century. The importance of
land tax declined and that of commodity
taxes and royalties increased. In Mysore, the
share of income from excise, forest royalties,
state railways, and royalties from the Kolar
gold mines increased their share substantially
between 1880 and 1910. Forest income was
also crucial in the numerous sub-Himalayan
states. In expenditure, infrastructure began
to increase its share. Third, in the nature of
infrastructure expenditure, the priorities in
the states by and large followed the priorities
in British India. Thus, in the late nineteenth
century, the main item of expenditure was the
railways.
In the interwar period, some of the
larger states began to play a more active and
explicitly developmental role. At this point,
the experiences of different states began to
diverge. Behind the divergence, a major role
was played by the nature of local politics and
by the technocratadvisers who commanded
influence in some of the states. In Mysore,
fiscal and monetary system 261
there was much interest and commitment
towards industrialization under the initiative
of the state. The debates on industrial policy
in Mysore anticipated some of the same
issues debated in the 1950s discourse on
development strategy (Chapter 7). Interwar
Mysore also saw the implementation of large
hydroelectric projects. In Travancore and
Baroda, the emphasis fell on the social sector,
education and health. In these states the role
of outsiders in the framing of development
policy turned out to be significant. In
Hyderabad, on the other hand, internal ruling
classes and business interests had a larger
influence on policy. Hyderabad more or less
confined itself to industrial development
under the leadership of the local landed and
trading communities. In this effort, Hyderabad
pioneered the concept of state-backed
investment banking, which has been used
extensively by central and state governments in
post-Independence India.
THE MONETARY SYSTEM
The primary goal of monetary policy in
colonial India was to stabilize the exchange
rate. An appreciation hurt commercial interests
exporting from India, and depreciation made
it difficult for the budget to meet its sterling
obligations. Monetary policy of British India
became a source of intense controversy in
the interwar period because the objective of
protecting the budgetary obligations, it was
argued, prevailed over the objective of helping
private commerce. The issue was whether
or not the government in India was allowed
by London to pursue a stabilization policy
independent of British economic interests.
Clearly it was not, a fact in evidence whenever
the Indian currency came under pressure, most
notably during the Great Depression. In order
to understand these features of dependence,
262 economic history of india
we need to take a close look at the exchange
system. Since Indian exchange was a modified
version of the Gold Standard, it is useful to
know how the Gold Sstandard worked in
practice, which is done in Box 10.1.
From the Silver Standard to the Gold
Exchange Standard
With the currency reforms of 1835 (Chapter
2), a modified silver standard had been
introduced. In other words, silver became an
accepted means to settle the balance of trade.
The silver rupee was further supported by a
promise to mint coins on the presentation
of silver bullion. There were two ways that
money could be transferred between India
and the rest of the world. The India Office
sold Council Bills in London at an announced
exchange rate, which the Exchange Banks
purchased, sent to India, redeemed at the
Treasury and financed trade demands for
money. The receipts in London were used to
meet the home charges. Alternatively, traders
could buy silver in London, ship it to India,
and have these minted into silver coins for a
fee.
In the last quarter of the nineteenth
century, an excess supply of silver in the world
led to a fall in silver prices, which made the
second mode of payment the more profitable.
The Council Bill system came under threat
unless the government devalued the rupee.
Depreciation did occur, but at considerable
cost to the budget. On the recommendations
of a committee of enquiry headed by Farrer
Herschell, the Lord Chancellor, free coinage
of silver was abolished in 1893. The next
few years saw shipping of silver bullion for
payment, and yet, the rupee did appreciate
somewhat. In 1898, on the recommendation
of another committee under the direction of
Henry Fowler, a Gold Exchange Standard was
introduced.
The Gold Exchange Standard was in force
between 1898 and 1916. The rupee was
convertible against sterling and not against
gold, at a ratio of 16d per rupee, or Rs 15
for a pound sterling. These years witnessed
an animated discussion within India and in
London, on the merits of a full Gold Standard
for India. The desire for a Gold Standard was
strong in India, and the view that the Gold
Exchange Standard was adequate for India
was just as strong in London. At stake was
the autonomy of Indian monetary policy. For
many contemporaries, the Gold Standard
represented the freedom for India to settle
her obligations directly by means of flows of
metals. In any case, World War I shelved these
debates.
To support the exchange, the India Office
sold Council Bills in weekly auctions at the
Bank of England. Until 1905, the volume of
these sales was limited to the home charges.
The limit was removed thereafter, and the
sale of these bills effectively became a strategy
to stabilize the exchange by preventing
free movement of metals for settlement of
balance of trade. An official Gold Standard
Reserve was created. It was transferred to the
India Office in 1902. The reserve thereafter
consisted mainly of British government
securities, Treasury Bills, Exchequer Bonds,
and Consols, in turn contributing in no small
measure to keeping interests rates low in
Britain. The India Office also used the Gold
Standard Reserve of India in the call money
market, leading to a closer alliance between
the India Office and the City or the financial
centre. The only occasion in the pre-war
period when the government needed to draw
on the currency reserve occurred in 1907,
when a trade deficit threatened a depreciation
of the rupee. On this occasion, the government
also used the Reverse Council Bills, a
 fiscal and monetary system 263

Box 10.1 The Gold Standard

Under the Gold Standard, gold served two functions at once, it was the medium of exchange for settling
balance of payments, and it was the main component of currency reserves. Countries on the Gold
Standard needed to settle on a value of the domestic currency in terms of gold, for that ratio would
decide how much gold needed to be transferred for settlement to take place. When many countries did
this, the exchange rates between currencies became effectively fixed. A currency on the Gold Standard
was convertible to gold. That is, the central bank promised to convert domestic currency into gold on
demand. To back up this promise, and to settle net balance of payments, countries maintained a gold
reserve.
When importers in one country purchased goods from another, the banks in the former purchased
either the currency of the latter or gold from their central bank. Money supply in the importing country
fell and money supply in the exporting country increased, when the gold was converted into the currency
of the exporting country by the treasury. If demand for money was driven by transactions demand alone,
a trade deficit of the importing country would reduce prices in the buyer country, and raise prices in the
seller, and reduce demand for the latters goods while raising demand for the formers goods. This expected
adjustment system was called the pricespecieflow mechanism. Changing the exchange rate was in
principle an alternative way to control the demand for money. But under the Gold Standard, the exchange
rates became fixed and did not need to change. In the long run, not only exchange rates but also prices
remained stable.
This arrangement can break down if there is a crisis of confidence in the currency, that is, if a number
of people begin to believe that the value of the currency is soon going to change, and therefore, it is
preferable to hold assets in the form of gold rather than cash. This could cause a run on gold reserves and
force the governments to suspend convertibility. Such a situation transpired early on during World War I.
The system can also be a burden if the economic situation demands a revision of exchange rates. Such a
situation arose during the Great Depression when the Gold Standard came to an end.
In theory, the Gold Standard received two strong attacks. The first source of attack was Keynesian
macroeconomics, which suggests that money is held not only for transactions but also for buying financial
assets. In that case, a trade deficit can cause interest rates to rise as the supply of money falls, and in turn
make a recession worse. The second problem became apparent during the Depression. The Gold Standard
could cure recession in one country when the rest of the world was healthy. But if the whole world was in
depression due to a general crisis in purchasing power, then gold movements could not perform a cure, for
such movements simply would not happen.
India in the early twentieth century was on a Gold Exchange Standard. That is, the rupee was
convertible against sterling, the sterling was the main component of reserves, the rupeesterling ratio
was fixed, but the rupee was not directly convertible to gold-sterling. The currency reserve was held in
London. The counterpart of a specie-flow mechanism was the Council Draft system. Paying sterling
to the Treasury to buy rupee drafts that were cashable in India financed a net payment made by British
exporters. The rupeesterling exchange was held fixed not only because the principle of metallic
standards demanded it, but also because London worried about Indias ability to pay remittances if the
rupee depreciated.

counterpart instrument that facilitated supply War I. The first years of the war saw a loss
of sterling. of confidence in the rupee, due to inflation
The Gold Exchange Standard faced its in silver prices. From 191617, the inflation
first serious crisis towards the end of World threatened a disappearance of silver rupee
264 economic history of india
coins from circulation. An appreciation of
the rupee seemed inevitable. Between 1917
and 1919, the rupee was allowed to float. By
December 1919, the rupee had appreciated
by 75 per cent. A committee of enquiry
was established to study the situation; it
recommended an exchange rate at 2 shillings,
provoking a strong minority report from the
Indian member who advocated a return to the
pre-war ratio. Silver prices, however, eventually
stabilized, and confidence in paper currency
returned in the next two years, with the result
that early in the 1920s, the rupee depreciated
somewhat. In 1925, another committee of
enquiry endorsed the then prevailing ratio,
18d, to be the basis for a return to a modified
Gold Exchange Standard. From 1926 on, the
rupee was again closely controlled to remain
near 18d, the rate that was to prevail for the
next several decades.
The Ratio Controversy and the Great
Depression
The next 12 years until the outbreak of
World War II saw what has been described in
historical scholarship as the ratio controversy.
In the emerging political environment of
19301, Indian commercial and political
opinion had united in the belief that the rupee
was overvalued at 18d. The demand for a full
Gold Standard and autonomy with regard to
the exchange rate was growing again and now
allied itself with economic nationalism.
The conduct of Indian monetary policy
during the Great Depression, which seemed
to serve British interests at the expense of
Indian ones, worsened the controversy. The
beginning of a fall in world commodity prices
in the second half of the 1920s turned the
terms of trade adverse for India, and weakened
the balance of payments. Further, the fear that
the rupee might devalue eroded confidence
in the rupee. Official and non-official opinion
in India favoured depreciation of the rupee
sterling. But depreciation was not acceptable
to London for fear that the increased burden of
the home charges might lead the government
of India to default on its external obligations.
Neither of the two options usually available
to the India Office in dealing with a financial
crisisfresh borrowings in London, or
drawing on the reservesseemed practicable
in the prevailing economic and political
climate. The options available to the monetary
authorities in India were even more limited
and inflexible. A postponement of Indias
sterling obligations was discussed, but did not
materialize.
Eventually, on Londons insistence, the
government of India carried out monetary
contraction, in the hope that this would
reduce prices and raise demand for Indian
goods. The goal was not easily attainable,
for the demand depression was not specific
to India but a global phenomenon. The
contraction, therefore, had to be a deep and a
sustained one. Furthermore, as the contraction
continued, and the less it seemed to work, the
harder it became to return to devaluation. For,
the expected devaluation would have to be
larger than before, causing larger-than-before
adjustments in the budget. The government of
India feared that the resultant decline in prices
would raise real interest rates and rents, and
cause hardship. These fears were borne out.
The financial situation did cause widespread
transfer of assets from debtors to creditors in
rural India, and led to rural unrest over rent
and debt.
One principal mechanism used for such
transfer was the sale of gold jewellery. Rural
assets held in the form of gold and silver now
began to be liquidated. At the same time,
the British governments decision to leave
the Gold Standard in 1931 depreciated the

pound, and with it the rupee, against gold.
These circumstances led to a rise in the price
of gold in terms of rupees. On the basis of an
18d rupee, the price of gold was lower in India
than in the international market, causing a
great quantity of this gold to be sold abroad. In
the next five years, these gold exports reflated
the Indian economy, restored the balance
of payments, and provided the government
of India with enough remittance to meet
its sterling obligations. Nevertheless, these
exports were widely seen as a sign of distress
and a lost opportunity to build a currency
reserve for India, and thus left BritainIndia
relations much impaired.
The establishment of the Reserve Bank
of India in 1935 was the first step in the
dissociation of monetary policy from balance
of payments.
Critiques of the Monetary System
The decade beginning with the ratio
controversy saw the articulation of two types
of criticism of the monetary regime. Business
and nationalist politicians alleged that the
rupee tended to be systematically overvalued
to subsidize government charges in sterling.
Such a bias effectively taxed exporters, even
though it might encourage private investment
in the shape of imported capital goods. The
main evidence for inadequate supply of rupees
was a steady decline in price level in the
second half of the 1920s. Officials in charge
of operating the system disputed the meaning
of this evidence. A second criticism found
expression in contemporary scholarly views on
India, but took shape more explicitly in later
research. India, like the rest of the interwar
world, had a fixed or closely-controlled
exchange regime. However, while the world
retreated from fixed exchange rates during
the Depression, in India monetary policy
fiscal and monetary system 265
remained overly rigid in a reminder of its status
as a colony.
Both these episodes illustrate that the basic
aim of monetary policy in colonial India was
to stabilize economic transactions between
Britain and India. In turn, this larger aim
contained three specific objectivesto make
private transactions free of exchange risks, to
provide the government some stability in its
calculation of the remittances to be paid, and
to restrain Indias import of gold. India played
a countercyclical role in the world economy.
This role was mediated by the Indians desire
for gold. In a world characterized by fixed
exchange rates and gold as a main item of
reserves, expansion in India led to India
absorbing non-monetary gold at the expense
of monetary gold elsewhere. During and after
World War I Britain was faced with trade and
liquidity problems at home and feared that
the Indian gold appetite might upset Britains
own post-war adjustment process. Under these
fears, the British authorities tried to restrain
expansionary tendencies. In short, adjustment
in a beleaguered Britain hurt economic
expansion in India. The classic example of
the divergence of interests was the Great
Depression.
CONCLUSION
In many respects colonial India had a more
modern form of government than previous
Indian regimes. It had a more diversified
revenue base. It spent less on luxuries and
more on the genuine duties of the state
such as defence, welfare, infrastructure, and
institutions. Yet, it spent far too little on those
heads that we would consider today to be
developmental expenditure. And the little it
spent concentrated in areas that promised the
government monetary profit. The failure owed
partly to the small size of the government,
266 economic history of india
its varied expenditure commitment, and
a conservative outlook regarding revenue
generation. But above all, it owed to the
dependence of the budget on land taxation
and the quality of land resources, which
generated too little taxable surplus in the first
place. In this respect, the British colonial rule
displayed a path dependence, that is, it was
fundamentally like the earlier empires in the
subcontinent.
A further dimension of resource
endowmentspopulation is the subject of
Chapter 11.
NOTES
1. See Bipan Chandra, The Rise and Growth of
Economic Nationalism in India, New Delhi: Peoples
Publishing House, 1966, pp. 1903.
2. The numbers are constructed from figures
available in Statistical Abstracts for British India, Calcutta,
various years, and B.R. Mitchell, International Historical
Statistics: Africa, Asia and Oceania, and Mitchell,
International Historical Statistics. Europe 17591988, New
York: Macmillan, 1992.
3. Colonel Sykes, The Past, Present, and Prospective
Financial Conditions of British India, Journal of Royal
Statistical Society, 22(4), 1859, pp. 45580.
11
Population and Labour
I ndias population, long stagnant or growing
only at a slow pace, began to grow rapidly
from the 1920s. Given the large initial size of
the population, demographic change in this
region was a turning point in world population
history. What had changed to produce this
turn? What effects did demographic transition
impart upon the labour force? The present
chapter considers the demographic transition
with particular attention paid to the statistics
on population growth, and the structure of
occupations.
POPULATION
Population growth is shaped by three sets of
factors: (a) the economic rationality of having
large or small families, (b) the socialcultural
contexts influencing preferences for large or
small families, and (c) health care systems
and nutritional status, which shape human
ability to control or cope with biological
processes. The different paces at which these
factors change led to periods of high or low
population growth
The demographic transition theory sets
out these relationships.1 In pre-modern times,
death rates were high owing to diseases and
famines. It was a rational choice then to sustain
high birth rates. Net growth of population,
however, would still be small. High fertility
became a positive value and was supported by
religion, moral code, and customs of marriage
and family. From the nineteenth century,
death rates, first in the Western societies and
then in the developing world, began to fall.
Mortality fell because of improved health care
and nutrition. But the behavioral conditions
sustaining high fertility had a life of their own,
and did not weaken so quickly. As mortality
began to fall, the world experienced a period
of high population growth. Eventually, the
economic costs of having large families began
to be seen as excessive. More women working
for wages meant more women regarding the
time spent on children as lost wages. Costlier
vocational education meant more parents
valuing the cost of raising children differently.
Eventually, societies experienced a fall in
fertility and in the rate of population growth.
268 economic history of india
In later refinements of this sequence,
the economic rationality behind fertility
decisions has been seen in more complex
terms. Children are goods that require both
time and money to raise; which can limit
the affordability of children for parents.2
And yet, the role of cultural codes cannot
be discounted altogether for the desire for a
child is often expressed in cultural terms. For
example, the bias for a male child is prevalent
in northern India and weak in southern India.
Such differences between regions cannot be
explained by economic rationality alone.
In developing countries including India,
the demographic transition started later than
in Europe, but was speedier. The decline
of mortality was relatively quick, showing
the actions of developmental states as well
as an easier diffusion of basic technologies
contributing to disease and epidemic control.
With fertility staying relatively high, the rapid
fall in mortality translated into unprecedented
population growth rates in many cases. The
slower transition in fertility can be partly
explained by elements of the rational choice
models, as response to situations where
womens participation in wage work remained
relatively low, and educational opportunities
were limited.
With this background, it should be easier to
read Indian data.
Before 1881
A comprehensive census of the population
began to be conducted every ten years from
1881. Before that date, incomplete counts were
conducted for some regions and cities. In fact,
such attempts began from the early nineteenth
century. Officers of the East India Company
realized the administrative need for population
data, but did not always have the means to
carry out large-scale surveys.
For the pre-1881 period, and especially for
the pre-British period, population has been
estimated by using different assumptions. One
method, now discredited, is to assume that
population grew at a constant and assumed
rate until 1881, and thus estimate a figure for
the late eighteenth century.3 Such practices
often implicitly assume that wars and political
instability in the eighteenth century had
depressed population growth, the effects of
which disappeared in the nineteenth century.
Yet, with a few exceptions, politics was
probably never more than a minor source of
mortality at any time in Indias history. The
main influences were disease, epidemics,
famines, inadequate nutrition, and poor
hygiene. We do not know enough to suggest
patterns of dynamics in these variables over
centuries.
One study, owing to P.C. Mahalanobis and
D. Bhattacharya, uses an acceptable if still
indirect procedure. It produces a series for
180171 by adjusting for under-enumeration,
under-coverage, and the presence of
disturbing factors, that is, episodes that killed
a large number of people in the major regions.
For the nineteenth century, the presence of
such episodes is somewhat better documented.
The existing estimates were then adjusted for
these episodes to create a time series, using
informed guesses about how severe these
episodes were. The result is shown in Table
11.1. The figures show a small but positive
growth rate of population in the nineteenth
century. The period was broken by violent
fluctuations. The severity of such fluctuations
declined after 1841. Whether the fluctuations
owed to the method the authors used or to the
shocks themselves, it is hard to say.
Pre-census population estimates of Bengal
form a richer dataset than counterparts
available for the other regions of India, and
deserve a discussion. About 1800, H.T.

Table 11.1 Population Estimates, 180171
Millions Percentage Change over the
Decade
1801 207
1811 215 + 3.9
1821 205 4.6
1831 216 + 5.4
1841 212 1.9
1851 232 + 9.4
1861 244 + 5.2
1871 256 + 4.9
Source: P.C. Mahalanobis and D. Bhattacharya, Growth
of Population in India and Pakistan, 18011961, Artha
Vijnana, 18(1), 1976, pp. 110.
Colebrooke estimated the population of
Bengal and Bihar at 30 million, based on a
census of the Purnea district. He defended
this figure by an ingenious device, salt
consumption per head. Salt sale was a
government monopoly, so that the production
of salt could be measured with reasonable
accuracy if one assumed, somewhat tenuously,
that smuggling was absent. A calculation based
on collectors reports yielded a population for
Bengal of 22 million in 1789. A nineteenth
century historian of Bengal, William Hunter,
stated that Bengal had lost about a third of
its population in the 1770 famine. In that
case, population before the famine could
have been around 30 million.4 A recent
reconstruction projects the rate of change
recorded in the census period 18711921
backward to arrive at a population of 41
million for Bengal in 1761.5 The territory of
Bengal in the eighteenth century was about a
quarter smaller than the territory used for this
study, so that 30 million is again consistent
with this information. If these figures are
reliable, then Bengal saw a nearly 50 per cent
increase in population in the next 100 years,
well above the increase predicted in Table
11.1. That being said, it is hard to generalize
population and labour 269
from Bengal to all of India. Bengal, which did
not see a major famine in this time span, and
received large numbers of migrants to work in
the mines and factories, may well have been
exceptional among Indian regions.
18811941
For a long comparison, population estimates
must be adjusted for change in territorial
extension over time. Table 11.2 shows census
figures after these adjustments. The table
adds figures for the post-Independence period
to enable long-range comparisons. Four
conclusions can be drawn from the table.
1. Population growth rate was small (on
average about 0.4) between 1881 and 1921.
2. The growth rate increased from 192131.
3. There were fluctuations in 18721921. The
18767 famine and the influenza epidemic
of 19189 caused unusual mortality
immediately before a census count so that
both 187281 and 191121 censuses show
near-zero growth. But the intervening
censuses show somewhat higher rates
growth.
4. After independence, population growth
accelerated, until 1981 after which a small
decline in the growth rate is in evidence.
Acceleration on an expanding stock has
led to exponentially larger numbers added
every 10 years. The last column in Table
11.2 shows this net addition. For some
purposes, such as measuring changes in
the balance between natural resources
and people, this figure better indicates the
economic impact of population growth.
There were differences between major
regions. One source of difference was the
uneven impact of famines. Growth was
positive and above average in eastern and
270 economic history of india

Table 11.2 Population of Colonial India and the Indian Union, 18812001

British India and the States Present Territory of India

Excluding Burma

Total Average annual Total Average annual Number of persons added

(millions) growth rate (%) (millions) growth rate (%) every 10 years (millions)
1881 257
1891 282 0.9
1901 285 0.1 239
1911 303 0.6 252 0.6 13
1921 306 0.1 251 0.0 1
1931 338 1.0 279 1.1 28
1941 389 1.4 319 1.4 40

1951 361 1.3 42

1961 439 2.2 78
1971 548 2.5 109
1981 683 2.5 135
1991 846 2.4 163
2001 1027 2.1 181
Source: Leela Visaria and Pravin Visaria, Population (17571947), in CEHI 2, pp. 463532. The 18911911 esti-
mates are based on Kingsley Davis and Judith Blake, Social Structure and Fertility: An Analytic Framework, Economic
Development and Cultural Change, 4(2), 1956, pp. 21135. Post-1947 estimates are from Statistical Abstracts of India,
Delhi, various years.

southern India. Both regions suffered from
fewer and milder famines and food scarcities.
The worst famines in the colonial period
occurred in dry-land southern and western
India. Western India experienced a less than
average growth rate and great fluctuations.
Again, famines partly explain the pattern. The
worst of these episodes occurred in 1896.
Northern India also experienced slow growth.
Parts of this region were susceptible to scarcity,
if not famines. The Gangetic delta offered
more secure lives, thanks to a more secure
agriculture.
In British India as a whole, and in the
regions, the age composition of the population
remained stable throughout the census period.
Children, or persons of 014 years, formed 39
per cent of the total population. The elderly,
defined as persons of 60 years or above,
formed 45 per cent. Persons of working age
(1559) formed 667 per cent. One of the
main influences on age composition was the
fertility rate. And the above stability derived
mainly from stability in this rate, as we shall
see.
There were about 103070 males per 1000
females. From 1901, there was increase in the
malefemale ratio. The excess of males was not
a universal feature. In north India, the excess of
males and deficit of females was stark. In south
India, there was an excess of females. Three
hypotheses have been offered to explain the
excess of males in the north, systematic under-
enumeration of females, systematic under-
reporting of female births, and greater risks of
death for women both at birth and at the time
of childbearing. The third kind of risk arose
from social biases against the girl child. They
arose more specifically from such practices as
female infanticide among some communities,
 population and labour 271

and the neglect of female infants and children. sometimes as much as 2030 per cent of the
Because local cultures were responsible, the population of a large region. Because famines
sex composition varied by region. were environmental in origin, the situation
There are three main factors determining could not have been fundamentally different in
population growth. These are mortality the pre-British period. It can be assumed that
or death rate, fertility or birth rate, and net the mortality rate in pre-colonial India was not
migration. Colonial India experienced a far from the levels observed in the 1880s. Birth
mortality decline from the early twentieth rate could not be biologically much higher
century. Why did mortality decline? than what it was found to be in the 1880s.
These two assumptions lead to the inference
Mortality: Causes of High Levels that population must have grown rather slowly
in pre-colonial India. On the other hand, the
Table 11.3 shows the general tendencies in disappearance of famines, or large-scale deaths
death and birth rates. Mortality rate, initially caused by harvest failures, was one major
high by world standards, declined steadily factor in the fall in death rates.
and quickly from 1921. Mortality was high Along with famines and diseases, mortality
mainly owing to famines. Indias location on also depended on social practices that exposed
the tropics, and extreme dependence on the certain parts of the population to exceptional
monsoon rains for livelihood, made food health risks. High maternal and infant
availability prone to risks in areas that received mortality in British India partly reflected social
relatively less rain normally and had fewer customs. Infant mortality per 1000 live births
perennial rivers, such as the Deccan plateau. was above 200 in 1901. It came down to 180
The possibility of crop failure, water scarcity by 1931. This level did not compare too badly
and famine was built into the geography of the with the poorer countries in South America
region. In recorded history of famines, some of or even Europe, and was somewhat above the
them were known to destroy millions of lives, rates in British Malaya. But it was still among
the worlds highest. The causes of infant
Table 11.3 Crude Death and Birth Rates, mortality were not necessarily the same as the
18811951 causes behind high mortality in general. High
infant mortality also derived from the poor
Death Rate Birth Rate health of the mothers, in turn, a result of child
(deaths per 1000 (births per 1000 marriage, frequency of motherhood, primitive
persons) persons)
obstetrics, and unsanitary conditions. Women
188191 402 479 in the cities were seemingly not much better
18911901 3850 4651 off in this regard. In some cases they were
190111 414 448
191121 4250 459
worse off. An enquiry in Bombay found
192131 338 428 that women mill workers did not have fewer
193141 302 435 children than in the rural areas. But they did
194151 25 402 have much less rest during and after pregnancy
Source: Visaria and Visaria, Population (17571947), for than in the rural areas.6
these estimates. High infant mortality could respond only
Note: The figures for death rate and birth rate show the partly to the hospitals that the government
range of different estimates. built. For, one of the causes of child mortality
272 economic history of india
and the birth of children with impairments
was the age at which women began to bear
children. India as a whole practiced child
marriage. Some regions had a poorer record in
this respect than others. The age at marriage
tended to be the lowest in eastern India
(Greater Bengal, eastern UP, but not Assam),
and parts of central India. Age of consent laws
existed in British India, but were universally
disregarded until the enactment of the Child
Marriage Restraint Act of 1930. This act
made the marriage of women below the age
of 14 punishable, if not invalid. The Act was
no more than a piece of paper for a long time
after it was passed. Marriages were held in
public places in open defiance. Different
religious communities had different views on
it. In western India, marriages could be held
a few miles away from the village, inside the
territory of a native state where British laws
did not apply. Nevertheless, the Act, and the
few actual convictions under it, may have had
a mild deterrent effect after 1930.
Mortality: Causes of Decline
In the larger literature relating to the
developing world as a whole, there are two
positions on the origins of mortality decline.
The first emphasizes public health measures
that led to better treatment of communicable
diseases. The four pillars of successful medical
intervention in the early twentieth century
were malaria eradication, immunization,
improved sanitation, and the use of antibiotics.
However, critics of this view point out that
none of these measures was universally
applied before mortality began to decline,
nor can these explain such prior episodes of
accelerated population growth as in eighteenth
century Europe. An alternative view is that,
a worldwide improvement in nutrition led
to improved resistance to diseases. The
change owed less to the quantity of food
consumed and more to a better distribution
of food intake. Better food distribution in
Europe followed in the wake of the Industrial
Revolution and reached the developing
countries late in the 19th century as the Third
World came increasingly under the political
domination of the West.7
In India, the variables that are believed
to have played the most significant role
in mortality decline seem to illustrate the
second view, though the first effect was
undoubtedly present after 1920. A government
infrastructure for famine relief came in place.
Long-distance private trade in grain expanded.
As the railways grew in density and reach,
grain could move into scarcity areas much
faster than before in response to higher prices
of grain. And, in some regions, a network of
canals contributed to stability in food supplies
(see also Chapter 3). Along with these factors,
major achievements had been made in disease
prevention and control about the turn of the
century.
In one interpretation, population
growth rate was higher in 180172 than in
18721921, suggesting that the colonial
economic modernization in fact left ordinary
Indians worse off in terms of health.8 Indeed,
it would seem that the modernization project
somehow increased the severity of famines and
epidemics. For example, better infrastructure
and greater migration aided the spread of
epidemic diseases. If this is acceptable, then
increasing immunity to these diseases would
have contributed to a fall in mortality after
1921. The argument hinges on the assumption
that population growth was higher before
1872, which is not well established. In fact, the
evidence on Bengal earlier discussed would
suggest the contrary.

Epidemic Diseases 9
Three diseasescholera, plague, and
malariatook a heavy toll of life in the late
nineteenth and the early twentieth century.
Cholera and plague epidemics were known to
have occurred from much earlier. Cholera was
related to unsanitary living, polluted water and
congestion. For these reasons, outbreaks often
started in pilgrim towns, during fairs, or after
floods. Famines were responsible for a variety
of epidemic outbreaks. Famines reduced access
to food and water. Water scarcity drove the
poor to contaminated sources of water, roots
and poor quality food, and undernourishment
weakened resistance to bacteria.
It is established that economic
modernization and colonial policies
contributed to the impact of some of the
epidemic attacks that pre-war India witnessed.
Urbanization, for example, induced the spread
of diseases. Crowded and unsanitary living
conditions were a relatively new phenomenon
in colonial India. Army barracks were
particularly susceptible to epidemic diseases.
Due to its association with starvation and
overcrowding, some of the more common
epidemic diseases such as cholera were
generally seen as diseases of the poor. Between
1882 and 1927, fever, the generic term for
malaria, accounted for about two-thirds of
all deaths. Malaria had a close association
with agricultural expansion. A section of the
colonial bureaucracy vehemently denied the
association between economic change and
disease intensity, making matters worse.
In the early nineteenth century, Western
medicine and doctors retained a somewhat
open mind towards the indigenous knowledge
and treatment of local diseases and conditions,
for their own methods of treatment were not
remarkably more effective nor were their
population and labour 273
theories of causation all that different from
those entertained by the vaid and the hakim.
The situation changed in the late nineteenth
century, when great development in Western
medicine and surgery, with its new notions
of hygiene and the germ theory of disease,
created a wide gulf between indigenous and
Western systems in terms of effectiveness.
Nevertheless, knowledge of the source and
treatment of some of the major killers, such
as plague or malaria, lagged behind epidemic
attacks. And therefore, official policy to
contain the disease could be as injurious as the
disease itself. Plague is a case in point (see also
Figure 11.1).
From its first major appearance in Bombay
in 1896, to 1938 when the pandemic had
spent itself, plague claimed twelve million
lives and caused social disorganization on a
large scale. The plague bacilli had possibly
been native to certain regions, including the
Himalayan foothills and the Western Ghats
in Mysore for a long time. But a combination
of circumstances made this possibly the third
return of the plague in world history and a
disaster for India. These circumstances were
the existence of black rats and fleas that carried
the disease, crowding, and malnutrition. Both
cholera and malaria had a strong association
with famines and scarcity, but plague did not.
However, all three hurt the poor more than the
rich. Plague also affected certain professions,
for example, grain dealers, who were more
exposed to infected rats.
When it first occurred as a pandemic in
colonial India, the official response was to
segregate infected persons, often by applying
force. How the disease was carried, and
the particular role of rodents, was poorly
understood. And therefore, these efforts failed
to check mortality that ran into thousands
every month in the crowded slums of Bombay.
274 economic history of india

Figure 11.1 Plague Segregation Camp, Bombay, c. 1900.

The picture shows a medical team visiting a makeshift urban slum, and the temporary home of a population suspected
to be exposed to infection. Segregation was among the few measures thought to have been effective in controlling
the disease. But it was a method that involved excessive intervention in personal and social life, usually of the poorer
residents of the city.
Images of Asia

On the other hand, these efforts generated
widespread hostility to the health officer and
public hospitals. Compulsion, segregation,
and evacuation were eventually abandoned,
as the real cause of the disease was revealed in
research carried out in Bombay. However, the
decline of the incidence of plague after 1916
owed less to a change in health policy, and
more to immunity.
Smallpox was a worldwide killer in the
eighteenth and nineteenth century, and India
was no exception. Although the smallpox
vaccine was discovered in 1796, throughout
the nineteenth century, its diffusion was rather
slow. Hospital records show that in 1852,
the smallpox fatality rate (deaths per affected
population) was as high as 42 per cent in
Calcutta. Fatality rates, however, dropped to
less than 25 per cent in rural areas. After a long
and bitter fire-fighting operation, lasting most
of the nineteenth century, smallpox was, like a
fire, controlled but not extinguished.10
Birth Rate
The smaller the chance of survival of children
the greater the inducements of parents to
produce more children. This insurance
reasoning might explain why, historically, birth
rates in India were high. The fertility rates did
not attain the biological maximum. But these
were high enough to maintain population
stability in the face of a high death rate, and
were also high by international standards.
There are various social means of ensuring
a high birth rate. The most effective is to get
women married early. Marriage occurred early,
and early marriage increased the risks of death
of children. On the other hand, there were
several social practices that had a depressing

effect on the birth rate, for example, female
infanticide in north India, and prohibition on
widow remarriage among the Hindus.
Why did fertility remain high even after
mortality began to fall? A vicious cycle was
seemingly at work. Early marriage reflected
a strong cultural norm. In turn, it restrained
the participation of women in commercial
work, and led to low levels of female literacy
(practically zero literacy before 1901). It
was associated with a social attitude that did
not see women as productive workers, and
therefore, did not see them as legitimate
claimants to property. Women themselves
did not value their time spent at home
commercially.
Migration: International
International migration represented a
worldwide trend towards increasing labour
mobility; a joint outcome of new economic
opportunities and the revolution in long-
distance transportation. International
migration was not a significant influence
on population growth rates. In 188191,
for example, net emigration from India was
about 700,000, a mere 0.3 per cent of the
1881 population. In the next decade, the
percentage was a little higher, but it declined
thereafter. And yet, if overseas migration is
only a side story in demographic history, it
is a chapter in the history of globalization.
For the world economy, the economies and
societies of tropical colonies, the history of
sugar plantations worldwide, and for some
regions and groups of people in India, overseas
migration was a matter of great significance.
Organized emigration began in the 1830s
when recruiting agents contracted with large
parties of potential workers and arranged
to send them abroad. During 183070,
population and labour 275
Madras and Calcutta were the main ports
of embarkation. The destinations were the
British colonies in Southeast Asia, Mauritius,
Burma, the Pacific, and the West Indies. The
Madras port sent several hundred thousand
Tamils to Ceylon and Burma, and many others
to Mauritius, South Africa, and the West
Indies (see Figure 11.2). The French ports in
south India were other points of embarkation.
During 18301930, about one and a half
million persons left India to work abroad.
Many returned to India after a few years, so
that net emigration was rather small. Mauritius
and the Caribbean took nearly 80 per cent
of the migrants between 1830 and 1900, and
Asia almost 100 per cent between 1900 and
1937. From the early 1920s, net emigration
began to fall quite sharply even as the number
of migrants increased. For, after 1920, return
migration speeded up.
Overseas migrants, like migrants to the
Assam plantations, came from certain regions,
perhaps the most important was Chota
Nagpur. Hill coolies, the phrase used in
early nineteenth century official documents,
referred to a group of people who lived on
the margins of the forests, and were already
familiar to the indigo planters of Bihar
as reliable wage workers. At a time when
wage workers were not easy to find, their
reputation travelled, through channels we
can only guess at, to the European shippers of
indentured labour in Calcutta and onward to
the sugarcane planters in Mauritius and the
Caribbean. Many of the groups that left Indian
shores had lived on lands that yielded a poor
crop year after year. The decade of the 1830s,
which saw the Guntur famine and a massive
cyclonic storm followed by inundation, was
disastrous for agriculture in the Andhra coast,
and pushed many people out of their homes
and towards the Madras port. From the second
276 economic history of india
decade of the nineteenth century onward, a
certain number of handloom weavers joined
the migrant gangs in south India. And yet,
in the early nineteenth century at least, the
push factor does not completely explain the
decision to migrate such immense distances to
unknown destinations. Routinely, shippers and
their agents needed to use coercion and fraud
to induce potential migrants to board the ships.
Many were told they would be given jobs in
Calcutta, and once they reached the city, were
then forced into the ships. There were reports
of kidnapping. The journey itself was a minor
horror story in the 1830s. Mortality en route
was not particularly high, but the crowded
conditions of the ships, shortage of water, and
poor medical care worsened the toll when
diseases broke out.
One strand in historical research on
overseas migration has seen the whole
movement as evidence of slavery in another
name.11 Such views need to be tempered.
Even in the earliest days of mass migration,
interviews of returnees showed that coercion
and fraud were exceptional rather than
the rule. Most went willingly. There was a
substantial wage differential between home
and the plantations. In one account, a day
labourer in the Birbhum district of Bengal
earned Rs 12 per month at 1840. The same
person would earn Rs 45 in Mauritius on
arrival, and frequently, Rs 710 after a few
years stay.12 Not surprisingly, after completing
a five-year indenture, returnees brought with
them comfortable sums of money, and it was
their campaigning that induced others to join
them on the return journey.13
Given such opportunities, why did
migration not become much larger? The
difficulties of the sea voyage and very different
kinds of life at their destination discouraged
many people. Further for persons who were
ready to move, internal migration became a
substitute for international migration. From
the 1870s, plantations and public works inside
India recruited large numbers more or less
from the same districts that had once sent
workers abroad.
Migration: Internal
Internal migration had a significant impact
on the population growth of certain regions.
Persons who declared themselves as
immigrants formed about 1.8 per cent of the
total population of India in 1901, and 3 per
cent in 1931. In absolute terms, there had been
an increase of about 5 million persons who
had moved long distances. The percentages
varied between regions. For example, 125
per cent of Assams population consisted of
immigrants in 190131. It is certain that the
all-India percentage of immigrants was much
smaller than 1.8 about 20 or 30 years before
1901. For, internal migration in 1901 followed
a pattern of movement of recent origin. The
vast majority of migrants moved into specific
occupations and areas of opportunities that
had colonial origin, for example, plantations,
large-scale industry, and service in Burma.
The major movements happened along lines
indicated in Table 11.4 and Map 11.1.
2, 190131.
The table and the map show at least five
broad types of migration: (a) movement
out of high population density regions (UP,
Bihar, Bengal), (b) circulation of agricultural
labourers between neighbouring regions, (c)
traders and professionals seeking out new
fields, (d) peasants seeking out cultivable
land, and (e) agricultural labourers moving
into non-agricultural labour. To these we can
add one more type, the movement of artisans
from north India and the Deccan and their
resettlement in western and eastern India.
This movement is not adequately captured in
 population and labour 277

Table 11.4 Major Channels of Internal Migration, 190131

East India Bihar and UP to Assam plantations.

Bengal (mainly Mymensingh district) to Assam, peasants migrated in search of land for
resettlement.
Bengal to Burma, to work as labour and in the tertiary sector.
UP to Bengal, to work in industry, mines, and the tertiary sector.
Central India UP to central India, to work in mills,
Chhattisgarh to Berar, to work as agricultural and mill labour.
Hyderabad to Berar, mill labour.
South India Madras (Tamil Nadu) to Mysore, labour in mines, and into the tertiary sector.
Madras to Burma, labour and the tertiary sector.
North and Western Within Punjab, east to west, peasants and pastoralists resettled as peasants in the canal areas.
India Rajputana to Punjab, trade.
Rajputana to Bombay, trade.
Source: Census of India, Volume I, Parts 12, 190131.

census data, being relatively smaller in scale
than those shown in the table and the map
above. It was, however, significant for the
textile and leather industries at least.14
There is so far no research on internal
migration that can satisfactorily account for
the many drivers of internal migration within
one framework (see also Chapter 7). Some
of the common factors included socially and
economically depressed conditions in source
areas, and easier transportation.
FAMINES
Famines, defined as episodes of acute
starvation on a large scale, were a frequent
occurrence in South Asia until the mid-
twentieth century. As we have seen, in 1770,
a third of the population of Bengal reportedly
died in a famine. In three years around 1877,
four million lives were lost, mainly in Bombay
and Madras Presidencies. In 18967, more
than five million perished. And in 1943, a
million died in Bengal. The incidence of
mass starvation leading to death reduced
substantially in the postwar period. Were
famines in this region a product of nature or
a result of human agency? Why did famines
disappear after 1943?
Major Famines
Although famines have a long history in
the region, some of the best-documented
episodes occurred after British rule began.
The 176970 famine in Bengal followed two
years of erratic rainfall, but was worsened
by a smallpox epidemic (see also Box 2.1).
The 18123 famine in western India, which
affected the Kathiawar region especially,
came in the wake of several years of crop
loss due to attacks by locusts and rats. The
legendary Guntur famine of 18323 followed
crop failure as well as excessive and uncertain
levels of taxation on peasants. In at least
three episodes in nineteenth century western
India181920 in Broach, 18202 in Sind,
and 1853 in Thana and Colabafamines were
caused by monsoon flooding and resultant
crop loss. The 18657 famine in coastal Orissa
followed several seasons of erratic rainfall, but
was worsened by the persistent refusal of the
local administration to import food. In the
last quarter of the nineteenth century, major
278 economic history of india

Map 11.1 Main channels of internal migration

famines causing in excess of a million deaths a crop failure, caused the harshest famine of
occurred thrice, 18768, 18967, and 1899 the twentieth century, the 1943 Bengal famine.
1900. In each case, there was a crop failure of
unusual intensity in the Deccan plateau. Causes: Food Availability and
In the twentieth century, major famines Entitlement
were fewer. In 19078, an extensive crop
failure and epidemic threat was effectively A section of the colonial bureaucracy believed
tackled by state relief machinery. Food that famines were expressions of a Malthusian
procurement for World War II, combined with imbalance between resources and population,
 population and labour 279

Figure 11.2 Imported Indian Coolies in Jamaica

One example of a popular genre of group photographs of freshly arrived indentured workers from India. This group
appears to be hailing from Bihar or UP. The photographer H.S. Duperly and Son was a firm based in Kingston.
Images of Asia.

the impact of which colonial relief efforts
helped mitigate. The nationalist critics of
colonialism alleged that the scale of mortality
in the nineteenth century famines had
increased from those in the past because of
food exports, at times forced by high levels of
taxation. The colonial administration answered
that foreign trade in fact stabilized prices,
for exports increased in times of low prices,
and fell during high prices (see also Chapter
4). While these perspectives identified mass
starvation with scarcity of food, more recently
280 economic history of india
the relationship between food availability and
starvation has been recast in the entitlement
approach advanced by Amartya Sen. In this
view, access to food depends on an individuals
entitlement to food by means of direct
production, market purchase, or gifts and
transfers. It is possible to consider scenarios
where food supplies are adequate, but certain
groups face large declines in market based or
transfer based entitlements to food. Famines
can be caused by inability to buy food or a
collapse of transfers, even as food availability
does not fall. The Bengal famine of 1943, and
perhaps several other war famines of India,
illustrate this view.
Human agency in making famines worse is
an important factor. Having said that, to push
either market failure or entitlement failure
Figure 11.3
Failure of rain had devastating effects in the arid peninsular regions of India. Horrific nineteenth century photographs
exposed state failure in British India to the British public, and lent support to lobbies seeking more government
intervention in irrigation schemes.
Images of Asia
too far would amount to losing sight of the
environmental risks that rural populations
were exposed to in arid India. The dependence
of agriculture on a natural supply of water
increased the risk of crop failure, and single
cropping reduced security against the failure of
the monsoon crop. El Nio type disturbances
of the tropical oceanic atmospheric systems
could make rainfall more unpredictable.
Sudden and large-scale scarcity of food,
therefore, was part of the cycle of agricultural
production in the semi-arid regions (see also
Figure 11.3).
Demographic Consequences
Consistent with the predictions of the
entitlement approach, the effect of famines
Famine Victims, c. 1877

varied according to livelihood, gender, and
social status. Further, famines affected both
livelihood and demographic patterns, and via
these effects, could delay a return to normal
conditions even as the proximate cause of the
famine disappeared. Crop failures affected
artisans and wage workers in the rural areas
harder than the peasants. The peasants usually
had some storage of grain, which can be seen
as the only effective private insurance against
famines. The labourer, on the other hand, was
unable to obtain food as soon as food prices
increased, because money wages were poorly
indexed. The association between food prices
and famine mortality among wage workers,
therefore, was a strong one. Artisan incomes
too declined during famines, for households
stopped buying anything other than food
with the onset of a famine. The 1876 famine
drove large numbers of rural labourers and
handloom weavers of South India to enlist for
emigration to British tropical colonies abroad.
The 1896 and 1899 famines again encouraged
permanent migration. Famines also affected
land transfers between the poor and the
richer peasants, but these effects are not well
researched.
The two late nineteenth century famines
(18768 and 18968) destroyed almost
the entire expected natural increment
in population in Madras and Bombay
Presidencies in the relevant census decades.
In these episodes, the first few months after
a harvest failure saw a rise in food prices,
followed by a decrease in conceptions due
to famine amenorrhoea, and rise in deaths.
Deaths were more common among men,
who left home in search of work, among the
children and the elderly, and among lower
castes. Short-distance migration increased
during a famine, and caused severe health
crises. Almost always, crop failure drove people
to change diets and forage for food in the
population and labour 281
forests and commons. In the first few months
of starvation, fodder and seeds were eaten up,
so that livestock mortality increased. Towards
the end of a famine, epidemic diseases
claimed lives. Sustained malnutrition reduced
biological resistance to smallpox, plague,
cholera, pneumonia, and diarrhoea, and made
the population susceptible to malarial death.
Ironically, the spread of malaria was sometimes
attributed to waterlogging due to construction
of irrigation canals as part of famine relief
measures. These demographic conditions,
together with the shortage of livestock and
seeds, made return to normal cultivation
difficult even as the rains came back. After the
famine ended, the mean age of marriage for
women declined somewhat, marital fertility
and birth rates tended to rise above average,
and death rates fell below average.
Famines also created social stresses. Food
riots, burglaries and raids, mob violence, and
sale of children increased, causing a rush of
convicts into the prisons. Ironically, prisons
were the only places with secure entitlement
to food.
Famine Policy
In the early nineteenth century, the East
India Company left famine relief to the native
princes. In pre-colonial India, the very real
prospect of famines had encouraged the
construction of state granaries which were
used for relief purposes. Common measures
to prevent the occurrence of famines included
irrigation tanks and canals. On a more limited
scale, private and temple charity was also at
work. However, both the granaries and the
private systems were localized whereas the
incidence of starvation was widely dispersed.
In the second and the third quarters of the
nineteenth century, a discourse emerged in
administrative circles on the need for building
282 economic history of india
irrigation works and restoration of disused
tanks as insurance against future famines.
However, a clear policy in this regard did not
take shape until 1880. There was resistance
within the administration to expenditure on
irrigation, which, it was felt, brought uncertain
returns. State agency in relief, it was sometimes
argued, interfered with the agency of the
market in bringing food to the needy. The
ferocity of the 1876 famine, brought home
by a series of influential writings in English,
reduced these resistances.
Between 1876 and 1896, a relief
infrastructure was set up in British India.
The main element of the policy was relief
camps where starving persons could receive
food in exchange of labour at public works
projects, such as construction of railways
or irrigation canals. A Famine Insurance
Fund was started in 1881, out of which
relief-related expenditures were to be funded.
The relief camp was not unknown in 1876,
but its effectiveness during that episode was
in serious dispute. Its scale was limited, the
labour requirement was rarely enforced due
to a shortage of supervisors, and entry was
based on the degree of distress, which was
hard to define and subject to abuse. By the
end of the century, the relief camp was a
well-established institution in Madras and
Bombay Presidencies, and could mobilize
thousands of labourers for construction works.
The Famine Commission of 1881 outlined
the relief policy and the provincial Famine
Codes wrote down detailed instructions for
the local administration to follow. If the relief
camp was efficient in mobilizing labour, it
was not very effective in averting large-scale
mortality. Many seekers of relief, such as the
artisans, could not offer the kind of labor the
camps wanted and paid for. Some did not want
to eat the same food as others did due to caste
prejudices. Women often avoided the camps.
The Famine Codes became progressively
lengthier to accommodate this heterogeneity.
In the twentieth century, the state relief
system functioned much better. In the
interwar period, internal markets were efficient
in carrying food from excess to shortage
regions. Easier migration contributed to this
process. The railway network, in facilitating
these movements of goods and labour, had a
mitigating impact. Although the immediate
effect was quite devastating for Bengal, the
practice of the government controlling food
and distributing food during World War II was
a long-term response to food scarcity. Serious
and large-scale erosion in access to food did
recur in the region again in 19667, but had
no significant impact on mortality. Starvation
deaths, though rarer, continue to occur in parts
of the arid zones which are poorly served by
irrigation and transportation.
LABOUR FORCE
Structure of Occupations
Census data on employment by occupation
are available from 1881. However, the early
censuses, especially 1881, 1891, and 1901,
involved a number of problems of definition.
The works of Daniel and Alice Thorner,
and J. Krishnamurty, identify the following
problems.
1. The 1881, 18911901, and 191131
censuses used different occupational
classifications.
2. The data on women workers were suspect
in almost all the censuses. In particular, the
earlier censuses are thought to have inflated
the number of women workers by treating
part-timers as full workers.
3. There was a category called general labour
in the early censuses that was meant to
 population and labour 283

include non-specialized rural labourers. When re-adjustments are made to deal

The majority of such people performed
agricultural labour as their principal
livelihood. This category of workers,
therefore, should be seen as agricultural
labourers.
4. The earlier censuses sometimes clubbed
manufacturers and traders of industrial
goods, and included all of them under
industry. This gave inflated shares of
industry in 18811901. To avoid a
misreading, industry and trade data should
be seen together and not separately.
5. The 1931 census used a definition of
worker that was more restricted than its
predecessors.
6. In 1951, there was a category called
services otherwise unclassified which was
probably equivalent to agricultural/general
labour.
with some of these problems, occupational
data look like the numbers shown in Table
11.5.
Three major conclusions emerge from
Table 11.5. These are:
1. Participation rate fell in the long run. One
reason behind this trend was the changing
age composition in favour of children and
adolescents. Participation rate was lower for
women than men, and fell between 1921
and 1951.
2. If we confine ourselves to comparing the
primary, secondary and tertiary sectors
only, there was no change in occupational
structure in the long run.
3. Divisions within the secondary and the
tertiary sectors can be drawn only broadly.
The 1881 data for industry is suspect, and

Table 11.5 Labour Force and Occupational Structure, the Indian Union, 18811951

1881 1901 1911 1921 1931 1951

Population (million) 213.2 238.1 251.9 251.2 278.7 356.6
Workforce (million) 100.8 115.7 121.0 117.7 119.4 139.5
Participation rate (%) 47 49 48 47 43 39

Participation rate for men (%) 63 63 62 60 58 54

Participation rate for women (%) 31 33 34 33 27 23

Occupational structure
(% of workforce):
Primary sector* 74 75 76 77 76 76
Secondary and tertiary sectors 26 25 24 22 22 24
Industry and trade**,*** 20 16 16 15 15
Industry** 10 9 9 10
Trade and transportation 7 7 7 7
Other services 7 6 6 7

Sources: Alice Thorner, The Secular Trend in the Indian Economy, 18811951, Economic and Political Weekly, 14(2830),
1962, pp. 115665; Daniel Thorner, De-industrialization in India, 18811931 in Daniel and Alice Thorner, Land and
Labour in India, New York: Asia Publishing House, 1962.
Notes: * Includes animal husbandry, forestry, hunting, fishing, and general labour.
** Includes mining, construction. *** For all of British India, including Burma.
284 economic history of india
if that census is ignored, substantially the
same conclusion of stability emerges.
The stability in occupational structure and
fall in womens participation deserve detailed
comment.
The apparent inertia in occupational
structure has sometimes been cited as
evidence disputing the de-industrialization
thesis. We need to remind ourselves that a
number of large population movements lie
hidden under the aggregate lack of change.
As Chapter 6 suggested, men moved from
agricultural to industrial work, whereas
women moved backward from industrial to
agricultural work. Even as employment shares
remained unchanged, the structure of national
income changed. Between 19001 to 19045
and 19423 to 19467, agricultures share
declined from 6758 per cent, industrys share
increased from 2125 per cent, and services
share increased from 1217 per cent. It would
appear that despite rising labour productivity,
and possibly wages, in some sectors, migration
of workers between sectors remained
relatively limited. If this finding holds, we
need to investigate institutional barriers to the
formation of an integrated labour market.
Why womens participation rate declined
is an open question. In earlier research, there
was a tendency to treat the high rates in the
earlier censuses as a reporting problem that
got corrected over time. It has been suggested
that women who did commercial work only
as members of the household production
unit, and were marginally involved in such
work, tended to be misclassified as workers
in the earlier censuses (see also the discussion
in Chapter 6 on this point). But it is not so
clear that this is a correct view.15 There are
other structural reasons to expect a fall in
participation rate. The presence of a large
category general labour in the earlier censuses
has also been explained similarly as a reporting
problem. This category too, like adult women
workers, shrank gradually. Once again, a
structural explanation can be offered.
That men and women faced differential
prospects of a move into the labour market
is well known to economists. The difference
arises because of the need, in the case of
women, to accommodate wage work into
the domestic routine, in which the care of
small children is the most crucial task. Before
modern industrialization began, mainly
households performed industrial work, the
family itself was the unit of work, and the
balancing of domestic with commercial work
did not pose a problem. But, it did become a
problem as work began to shift. To continue
working, women needed to leave home and
children for some time during the day, which
was not easy. This difficulty shows up in
occupational statistics in the shape of two
commonly found tendencies. First, womens
participation in urban industrial labour tended
to first fall and then rise in the course of
industrialization. Initially, there was an exit
from the workforce. But commercialization of
domestic work, demographic transition and
the move towards smaller families, together
with technological change that saved time in
domestic work, enabled the participation rate
to rise again. In the course of industrialization,
womens presence in the urban industrial
labour market could followed a U-shape.
Second, age-wise womens participation
rate shows that the rate peaked for a group
in which adult unmarried girls formed a
majority, for example, 1524 years, the rate
then fell in a group in which the majority
were married with children, and the rate rose
again when many among the married women
returned to work. If the over-time rate follows
a U-shape, the across-age rate follows an
M-shape.16

In one possible account of the U-shape,
owing to Gary Becker, increase in wages
and incomes initially increased the desire of
the family to consume more domestically
produced goods and services, causing a
withdrawal, whereas continued increase
in wages and incomes made family time
relatively expensive and induced a return of
women to the workforce. Continued increase
in wages and incomes is not a good starting
point for India, even though in many richer
peasant households, withdrawal of women
from work when incomes increased can be
partly understood in these terms. A second
explanation derives from de-industrialization.
Manufacturing work exclusively performed
by women earlier, like grain processing or
hand-spinning of cotton yarn, moved from
the family to the mechanized factory, leaving
many women without jobs. This explanation
does not tell us why women who lost jobs
in the family did not go to the factory to
join the same kind of work. A third account
would derive from labour legislation. Various
pieces of government regulation gave women
workers the institutional means to handle
their domestic duties better, but were seen
by employers as reducing their flexibility.
One such legislation was the prohibition of
night-shift work for women. But government
regulations did not touch more than a small
fraction of the workforce in India. Between
1911 and 1961, more than one-and-a-half
million women notionally left manufacturing.
In the mills covered by the Factory Act, the
extent of the notional decline was only a few
thousands. The real sites of the decline were
small artisanal factories and workshops that
employed wage labour, but were not subjected
to any regulation.
A much simpler account of the obstacle
women faced when moving from family to
factory would point to marriage custom. The
population and labour 285
higher the age at marriage, the higher the
likelihood of participation of adult, unmarried
women in the workforce (a pronounced
M-shape) and the less sensitive is womens
work participation to change in industrial
organization from households to factories (a
weak U-shape). Likewise, a low age at marriage
meant that few young adults joined the
workforce (or the absence of an M-shape), and
consequently the majority of potential workers
found it difficult to leave home and enter the
factory as work shifted from home to factory
(a pronounced U-shape). It is the low average
age at marriage that can explain why womens
participation in industrial labour in colonial
India followed a U-shape (and did not display
an M-shape).
A different kind of structural factor can
explain the situation with general labour.
In the nineteenth century village, there was
indeed present a group of people engaged in
diverse work. These were the village servants,
artisans, and agricultural labourers. Such
workers tended to disappear and specialize
because their customary remuneration as
servant did not change as much as the wages
they could hope to receive in any of the new
labour markets opening up.
CONCLUSION
Population history in British India is a story,
simultaneously of transformation and inertia.
Population growth began to accelerate due to
decline in mortality rates. The decline reflected
new standards of health and sanitation, and
the disappearance of famines after 1900.
This latter development reflected Indias
newly acquired ability to adapt to its climatic
conditions. On the other hand, birth rates,
infant mortality, adverse sex ratio of women,
changed little. In short, there was rather little
change in womens status in society and in the
286 economic history of india
low value they commanded as commercial
workers. Even as commercialization
encouraged work participation and
occupational mobility for men, it discouraged
participation and occupational mobility
among women. Better value for men was
associated with a devaluation of women. The
long-term stability in occupational structure
and the retreat of women from the workforce
reflect that new valuation to some extent.
NOTES
1. See F.W. Notestein, Population: The Long View,
in T.W. Schultz (ed.), Food for the World, Chicago:
University of Chicago Press, 1945.
2. Kingsley Davis and Judith Blake, Social Structure
and Fertility: An Analytic Framework, Economic
Development and Cultural Change, 4(2), 1956, pp.
21135.
3. See the discussion in Leela Visaria and Pravin
Visaria, Population (17571947), in Dharma Kumar
and Meghnad Desai (eds), The Cambridge Economic
History of India, Volume 2 (CEHI 2), Cambridge:
Cambridge University Press, 1983, pp. 463532.
4. Henry T. Colebrooke, Remarks on the Husbandry
and Internal Commerce of Bengal, Calcutta: Publisher
unknown, 1806, pp. 1415. On famine mortality, see
Sugata Bose, Peasant Labour and Colonial Capital: Rural
Bengal since 1770, Cambridge: Cambridge University
Press, 1993, p. 10.
5. R. Deb Roy, Population of the Province of Bengal,
17511801, 2001, available at http://www-census.ined.
fr/epc2001_history/Authors/Rama/RamaRoy.htm.
6. Census of India 1931, Volume 1, Part I, Report,
Delhi, 1931, pp. 923.
7. Carter L. Marshall, Health, Nutrition, and the
Root of World Population Growth, International Journal
of Health Services, 4(4), 1974, pp. 677890.
8. Ira Klein, Population Growth and Mortality in
British India, Part I: The Climacteric of Death, Indian
Economic and Social History Review (IESHR), 26(4),
1989, pp. 387403.
9. David Arnold, Cholera and Colonialism in British
India, Past and Present, 113(1), 1986, pp. 11851; Ira
Klein, Plague, Policy and Popular Unrest in Colonial
India, Modern Asian Studies (MAS), 22(4), 1988, pp.
72355; and Sheldon Watts, Epidemics and History:
Disease, Power, and Imperialism, New Haven: Yale
University Press, 1997.
10. J. Banthia and T. Dyson, Smallpox in Nineteenth
Century India, Population and Development Review,
25(4), 1999, pp. 64980.
11. The most influential work in this class is Hugh
Tinker, A New System of Slavery, London: Oxford
University Press, 1994.
12. India, Exportation of Hill Coolies, London:
HMSO, 1841, 172.
13. The role of the returneerecruiters has been
highlighted in Marina Carter, Servants, Sirdars and
Settlers: Indians in Mauritius, 18341874, New York:
Oxford University Press, 1995. For a general survey
of migration to tropical colonies, see David Northrup,
Indentured Labour in the Age of Imperialism 18341922,
Cambridge: Cambridge University Press, 1995.
14. Douglas Haynes and Tirthankar Roy,
Conceiving Mobility: Migration of Handloom Weavers
in Precolonial and Colonial India, IESHR, 33(1), 1999,
pp. 3567; Tirthankar Roy, Traditional Industry in the
Economy of Colonial India, Cambridge: Cambridge
University Press, 1999, chapter 6.
15. In a later essay, Alice Thorner held that womens
low participation rate was not wholly a reporting
problem. See Alice Thorner, Womens Work in Colonial
India, 18811931 (unpublished typescript), London:
School of Oriental and African Studies, 1984. The essay
comparing regions and occupations is perhaps the only
detailed investigation into this trend now available.
16. Tirthankar Roy, Rethinking Economic Change in
India: Labour and Livelihood, London: Routledge, chapter
7. The U-shape was first observed by the demographer
J.N. Sinha and reported in an unpublished paper. See also
C. Goldin, The U-shaped Female Labor Force Function
in Economic Development and Economic History, in
T.P. Schultz (ed.), Investment in Womens Human Capital
and Economic Development, Chicago: University of
Chicago Press, 1995; C.E.V. Leser, Trends in Womens
Work Participation, Population Studies, 12(2), 1958, pp.
10010.
12
Economic Change in India
19502010
I n 1947, British colonial rule in South Asia
ended, and the region saw the creation of
several independent nations, principally India,
Pakistan, and Ceylon (Sri Lanka). The map
of the region was redrawn in 1971 with the
birth of Bangladesh. The Partition of India
had been a traumatic episode, involving the
largest forced migration the world had seen,
affecting possibly a million people, and on the
Bengal frontier, generating a dislocation that
continued on a milder scale for many years.
Those who moved included many merchants,
artisans, and peasants. Some had lost their
lands, assets, and clientele, and had to change
occupations. The trauma was heightened by
the fact that the new borders had been drawn
in a hurry, without due regard to patterns of
settlement, trade routes, and natural borders
such as rivers and hills. The relocation gave rise
to conflicts and competition between the older
settlers and the new, and the fashioning of new
institutions and interest groups to facilitate the
relocation process. The most visible impact fell
upon towns and cities affected by the process,
which changed their character dramatically.1
A full economic history of the episode is yet
to be written. What is clear is that it made
immediate and enormous demands upon
the financial and administrative resources of
the new nation states in the region, at a time
when the enforced division of offices between
the national capitals had weakened state
capacity. In comparison with the Partition,
another managed territorial restructuring,
the incorporation of the princely states into
the larger unions, was handled with greater
firmness and planning. It was s a messy affair
nevertheless, because few among the rulers of
the larger princely states cooperated with the
project.2
When the dust settled, and the immediate
economic and human crises subsided, the new
governments began to design strategies of
economic development. In the Indian Union,
these discussions had roots going back to
internal debates within the Congress late in
288 economic history of india
the interwar period, to rethinking on Indian
development in imperial circles, and even
further back to the formation of an economic
nationalism, elements of which have figured
in earlier chapters (Chapters 13 especially).3
The first Prime Minister Jawaharlal Nehru,
himself an architect of economic nationalism,
formed a bridge between these older
discourses and the developmental regime to
be erected. A new paradigm of state-directed
industrialization was conceived. Yet, there was
to be no abrupt break with the past. Factory
industrialization was made a priority, but
industry (as well as banking and insurance)
was still dominated by colonial-era firms and
Indian business communities, a situation
that changed only slowly in the next twenty
years. Big institutional changes were planned
for agriculture, but implemented to a limited
extent. Small industries were composed mainly
of the traditional handicrafts. On the other
hand, the capacity of the new state was not
wholly constrained by the capacity of these
agents, for foreign aid was available to initiate
state enterprise on a scale the region had not
seen before. With these elements, some new
and many old, an economic regime came into
being.
In 60 years, a great many elements shaping
economic growth and distribution have been
added, and the power of the old has declined.
For example, compared with 1950, traditional
business communities do not define the
pattern of entrepreneurship any more in 2010.
Nor do traditional handicrafts define the
character of small-scale industry. In agriculture,
several waves of green revolution have
transformed rural lives and livelihoods. While
this is true, it would be a mistake to exaggerate
the transformation. Path dependence, for
example, is present in the way land is tilled
in many regions of India, or in the manner in
which manual labour is employed. Agricultural
transformation is still an uneven and
environmentally constrained process as it was
in the colonial era, and continues to encounter
much the same kind of obstacles as it did a
century earlier. In some ways, the defining
features of past economic ideology have been
reaffirmed recently. For example, the sphere
of the states influence, enormously larger
and deeper though it is than in the colonial
times, is now being retracted, a move that the
nineteenth century political economist would
have approved of.
How do we study the present as a chapter
in an unfinished history? Post-colonial
development in South Asia is often analyzed
by economists exclusively in terms of state
policy and ideology, a practice that risks
overlooking the institutional and other forms
of continuity that shaped state capacity. The
practice risks misreading factors that helped
or impeded development as right or wrong
decisions that the state took. Alternatively, and
adopting a historical perspective, it is possible
to study postcolonial changes as an episode in
a history of interaction between state, society,
market, and the environment. Each phase in
this engagement contained something new
and lived with some things that were old.
Such an approach would see post-colonial
development as a particular phase in this
engagement, rather than as a paradigm shift
that made history dead forever. Comparisons
with the colonial period, in particular, should
tell us how some of the achievements of the
present built upon older foundations, and
some of the weaknesses reflected past failures
to overcome barriers to growth.
This is what the last chapter aims to do. The
attempt is confined to the Indian Union, the
choice being constrained mainly by available
space, but also in some way motivated
by the fact that the idea of state-managed
development saw freer flow in India than in the
 economic change in india 289

other nations of South Asia in the second half
of the twentieth century. The 1950s economic
nationalism, for example, was in a significant
sense a Congress legacy and not a Muslim
League one. See, however, the limited attempt
to restore the balance in the Boxes 12.1 and
12.2.
At the outset, it is necessary to come
to terms with the great variations that
characterized the post-colonial period.
THREE PHASES
Most analysts of the economic development
of postcolonial India would divide the 60-
odd years that distance 2010 from 1947
into several segments. There is no agreed
convention in cutting up the whole time
span into bite-size pieces, though quite
often the implicit intention is to suggest that
post-reform India is a qualitatively different
entity from the pre-reform one. The aim is to
suggest that, after the statist-autarkic regime
often mistakenly designated as Nehruvian
had ended, India experienced a pattern of
economic growth unprecedented in its history.
On this principle, the big dividing line falls in
1992, when some of the most dramatic tariff
reforms were undertaken.4 However, other
analysts observe that such a sharp disjuncture
misreads the gradualist element in the process,
and overlooks a build-up that had begun in
the 1980s.5 Nevertheless, one break falling
somewhere between 1985 and 1992 seems to
be in order. What was the regime like before
the 1980s?
Although the epithet, Nehruvian, is
sometimes loosely applied to the entire
pre-reform era, serious students of Indian
development would consider adding a dividing
line in the mid-1960s, when a relatively stable
pattern of state-led planned industrialization,
under the leadership of Jawaharlal Nehru, was
derailed by a series of external and domestic
shocks. The 1970s followed this phase with
its own kind of (oil) shocks. During much of
the twenty years that spanned the beginning
of this unstable phase and the beginning of the
economic reforms, the Prime Minister of India
was Indira Gandhi, who became the head of
state soon after the death of Nehru in 1964. It
can be argued persuasively that her rule led to
an economic structure that was quite different
from the one Nehru had wanted, being more

Box 12.1 The Pakistan Puzzle, 19502000

Immediately after independence in 1947, economic policy in Pakistan followed the common South
Asian path of import-substituting industrialization, financed by foreign aid, and supported by the classic
combination of import quotas and overvalued exchange. But the then West Pakistan embarked on
industrialization with strengths and weaknesses that were its own. After the Partition, Pakistan had few
large-scale industries, banks and other businesses. But it was not constrained by shortage of land, and
much of the existing cultivated land in Punjab and Sind had an irrigation ratio higher than that in the rest
of South Asia. Land, in principle, could play a relatively larger role in the pattern of economic growth
to follow compared with the rest of South Asia. And the private sector was relatively less regulated by
contemporary developing world standards.
Although manufacturing grew quite rapidly, led by cotton textiles which benefited from protection,
overall economic growth in the 1950s was of limited order. The Partition caused enormous difficulties,
and a functioning state machine was several years in the making. Agriculture, the largest source of
livelihood by far, suffered for want of a strategy and loss of industrial markets in India. A trade war with
India added to these problems. There was land reform, but the land ceiling had been set so high as to
290 economic history of india

make little difference to asset distribution. As these problems settled down, and a new government took
over power, the economic environment improved.
GDP increased in the 1960s at well above 5 per cent per year, owing mainly to a strong performance
of agriculture. The origins of the agricultural revolution in the 1960s owed to somewhat different sources
than counterparts in India or Bangladesh. There was a massive and partly aid-funded expansion in rural
roads and irrigation projects between 1955 and 1965. The new infrastructure made access to input
and product markets easier, contributed to extension of the land frontier, and induced complementary
private investment in tubewells. The biggest contribution to the growth in production, however, came
from sharply increased fertilizer usage, rising fivefold between 1958 and 1965. The manufacturing
industry also expanded under protection and a demand stimulus from agriculture. Export subsidy
and a relaxed implementation of import licenses saw industries with significant import content (such
as metals) expand capacity. While about half the big business houses in the 1960s had pre-Partition
origins in India, in the 1960s, new players from Punjab established themselves and farm profits were
invested in small-scale industry. By this latter route Lyallpur became a major manufacturer of tubewell
equipment, and Lahore of diesel pumpsets. Aid and foreign investment flowed in on a larger scale than
in the rest of South Asia. In the 1960s, per capita aid and aid share in GDP were higher in Pakistan than
in the developing world on average. The increased level of Western support derived partly from the Cold
War positioning, and contrasted with Indias late 1960s tilt towards the Eastern Bloc and dwindling aid
inflow. However, there was also a perception that Pakistan, being more market friendly than India and
in possession of a stronger agriculture, was a good horse to back. Not surprisingly, between 1965 and
1970, a number of monographic works written by Western scholars and the World Bank celebrated the
impressive growth of the Pakistan economy set in a capitalistic milieu.
Relatively unrestricted pursuit of private enterprise in agriculture and manufacturing increased
inequalities between regions, and between persons. Industrial concentration was relatively high; about
twenty business groups commanded a substantial share of the assets. Improvements in social indicators
between 1950 and 1970 had been slow, even imperceptible. In many accounts of Pakistan, the early
1970s socialist policies pursued partly with Soviet aid owed to a reaction to these inequalities. Growth
temporarily was shelved in favour of social reconstruction, businesses and banks were nationalized, and
accent was placed on education and healthcare under the direction of the state. The 1980s introduced a
limited liberalization, and the late 1990s broadened the scope of the reforms substantially. If periods of
macroeconomic instability preceding these reforms are excluded, capital inflow, remittances from the
Middle East, and decline in population growth rates, kept investment and GDP growth rates per capita
comfortably high.
Assessments of Pakistans economic performance stress the strong foundations in high productivity
agriculture, robust small-scale industry, substantial remittance earnings, the presence of a business class,
and a textile-based manufacturing sector that has globalized with notable success. But such assessments
also note that there were failures in inducing rapid improvements in social development, gender
inequalities persisted, defence spending crowded out social spending, and that rates of economic growth
had a negative association with democratic regimes, suggesting a failure of democratic regimes to build
strong economic institutions.

Readings: Rashid Amjad, Private Industrial Investment in Pakistan, 19601970, Cambridge: Cambridge
University Press, 1982; Shahid Javed Burki, Pakistan Under Bhutto 19711977, New York: St Martins
Press; William Easterly, The Political Economy of Growth Without Development: A Case Study of
Pakistan, Cambridge, Mass.: Kennedy School of Government, 2001; Parvez Hasan, Pakistans Economy at
the Crossroads: Past Policies and Present Imperatives, Karachi: Oxford University Press, 1998.
 economic change in india 291

Box 12.2 The Quiet Transition in Bangladesh

The story of the Bengal delta in the earlier chapters ended by describing agricultural stagnation and
intensified poverty. The syndrome derived from population pressure, degradation of land and rivers,
fragmentation of holdings, peasants without access to enough capital and consequently dependent on
private lenders, and limited possibilities of crop choice.
When an international border was drawn in the region in 1947, the then East Pakistan or present-day
Bangladesh was left with considerably less resources and a more densely settled population than the then
West Pakistan. The West was better endowed with land, had more commercial and technical manpower,
and received a bigger share of the foreign aid, at times due to the preferences of the donors. The East was
almost wholly located in the floodplains, exposed to natural disasters, and dependent on the cultivation
of labour-intensive crops, such as rice and jute, upon lands that seemed to have reached their potential
levels of production. In the 1950s, zamindari abolition was implemented with relative ease since many
of the zamindars had emigrated. In the 1960s, a few state-sponsored industries were started, and perhaps
more significantly, a programme designed to provide employment to the seasonally unemployed, rural
labour became moderately successful. However, no radical change in the pattern of economic growth
took place, especially when compared with the vigorous industrialization under way in both India and
West Pakistan, though under different kinds of policy and incentive regime. Consequently, disparity
between West and East Pakistan increased.
The newly independent republic of Bangladesh (1971) began with a commitment towards state
socialism, and quickly nationalized foreign trade, banking, shipping, and a number of large-scale
industries, some of which had been abandoned by their original owners. Investment licensing was
introduced. Food subsidies were high, and distribution of food was state controlled. The pace of
national control was slowed in 1975, and spheres of private trade were re-introduced, notably in
agricultural commodities, inputs, and equipment. A more radical retraction began after 1982 with
privatization of state companies, and withdrawal of investment licensing. The privatization was carried
out with remarkable speed, which partly explained the weak resistance it received from labour and
the bureaucracy, and units were sold at a discount with unpaid liabilities. Although messy, these steps
changed the incentive structure for private enterprise. On the other hand, trade policy remained
regulated until the 1990s. Thereafter, tariffs were lowered, and exchange controls and trade licenses
removed. Export of clothing, which had begun in the 1980s, experienced dramatic expansion after these
reforms.
The late 1970s had seen the beginnings of a green revolution. The early impetus to invest in land
improvement and adoption of high-yielding seeds in rice came from the agricultural deregulation
policies, and especially the retreat of the state from agricultural trade. In the 1980s, changes in the
production regime followed a path that was also producing dramatic results in West Bengal, namely,
a combination of winter rice, high-yielding seeds, and shallow tube wells. The resultant rise in the
gross area sown and total factor productivity in agriculture were of significant order. Rural livelihoods
diversified, and nonfarm activities increased substantially. Interestingly, West Bengal in India and
Bangladesh experienced a very similar pattern of agrarian transformation under radically different
institutional and political setups.
Along with the agricultural revolution, and a limited extent of export-oriented industrialization,
a third transformative factor was the decline in fertility. Bangladesh, which spends far higher share of
the budget on social expenditure than the other nations of South Asia, reaped the benefits in an earlier
and deeper demographic transition. The process of public and foreign funding of social sectors allows
non-governmental organizations a large role in the implementation. The partnership has given rise to
292 economic history of india

a flourishing NGO sector engaged in health, education, microfinance and empowerment, the scale and
effectiveness of which has few parallels in the developing world.
Despite the transformation, obstacles and failures persist. Through large shifts in policy, GDP growth
rate remained near 4 per cent per year from 1960 until 2009. The real breakthrough came from the fall
in the population growth rate, which doubled GDP growth per head. Poverty declined from 70 per cent
in 1972 to 40 in 2005, but the rate of decline tapered off more recently. Income inequality increased.
Industrial growth was driven by clothing alone. A large share of the aid resources was captured by
politically powerful constituents, including the richer farmers. And the region continues to be exposed to
climatic disasters.

Readings: Gustav Papanek, Pakistans Development: Social Goals and Private Incentives, London: Oxford
University Press, 1967; M.K. Mujeri and B. Sen, A Quiet Transition: Some Aspects of the History of
Economic Growth in Bangladesh 19702000, Washington, D.C.: World Bank, 2003; Asian Development
Bank and the Government of Japan, Economic Growth and Poverty Reduction in Bangladesh, Dhaka: ADB
and Japan International Cooperation Agency, 2004; and Barbara Harriss-White, Sugata Bose, and Ben
Rogaly (eds), Sonar Bangla: Agricultural Growth and Agrarian Change in West Bengal and Bangladesh, New
Delhi: Sage Publications, 1999.

rural biased and more state controlled. Gandhi,
in other words, was hardly a Nehruvian herself.
It was only in the early years of the 1980s,
that a few hesitant steps to reform the system
were taken, but Mrs. Gandhi did not live long
enough to assess the effects of these reforms or
to consider a more decisive change of direction
either forward or backward.
Following up this line of thought, the
chapter will divide post-colonial India into
three time segments, 195064 (Phase I),
196585 (Phase II), and 19862010 (Phase
III). The first break occurs on Nehrus
death. The year 19656 that saw the worst
famine of post-colonial India and a war with
Pakistan, is included in Phase II. This period
was disturbed by a number of crises. At the
level of policy, it was characterized by hugely
enhanced scope for government intervention,
a reduced role for private enterprise, a return
to the village after 15 years of industrialization,
and the beginning of disillusionment with
the Indian version of statism both among
the left and among the right. The mid-1980s
rethinking on policy came in the wake of this
disillusionment. This endogenous road to
reform made India a distinctive case among
reformers in the contemporary developing
world, most others having mended their ways
under external pressure from creditors and
donors.
What did the Nehruvian world consist of?
BIRTH OF A REGIME: 195064
Policy
Already before independence, intellectuals
close to the Congress, business leadership,
and writings that emanated from the
nationalist stable had expressed a desire for
planned industrialization. There were points
of disagreement between these groups, but
one shared ground was the need to restrain
trade and implement import substitution. In
1938, a document of the National Planning
Committee, a Congress outfit, set out state
planning as the principal means available for
managing development and industrialization.
The document expressed Nehrus vision of

India, though it was prepared by a team of
Congressmen, principally Subhas Chandra
Bose. The Bombay Plan document (1944)
prepared by seven leading industrialists of
the city saw the main form of government
regulation to come in the shape of protective
tariffs. It proposed a broadly deregulated
domestic economy, but allowed scope for
public investment in industries of strategic
importance.6 There was, however, another
strand within the Congress, the one inspired
by M.K. Gandhi, with an influential and vocal
following among the business leadership
of Ahmedabad. This approach considered
that rural regeneration should be the main
goal of development, and saw the village
community as the good tradition threatened
by industrialism. Internal debates on policy
leading up to the First Five-Year Plan in 1950
saw repeated conflicts and compromise
between these two visions.7
The intellectual roots of protectionism can
be traced to a number of sources outside India
and the Congress. With the world economy
in disarray after the Great Depression and
World War II, faith in trade and investment
as instruments of development was at its
lowest ebb. In the newly created discipline
of development, export-pessimism owed
to the argument that poorer countries that
had specialized in the export of primary
goods were vulnerable to price fluctuations
and a long-term decline in the relative price
of primary goods. Globally, the nineteenth
century European examples of protected
industrialization, the infant industry ideology,
and the Soviet example, powerful and effective
appeal. The public face of nationalism held
that free trade and a non-interventionist state,
both tenets of classical political economy to
which the colonial governments adhered,
had de-industrialized India, impoverished
its people, and drained its resources. Within
economic change in india 293
analytical development economics, varied
forms of indirect sanction to state-led
industrialization strategy could be found,
from theories of balanced growth to economic
development with unlimited supplies of
labour; all of these identified economic
development with a policy of raising aggregate
investment by a discrete jump, a step that
would be impossible with exclusive reliance on
the capital market.
Between 1950 and 1955, an import-
substituting industrialization strategy was
designed, the appropriate implementing
agencies created, and necessary regulatory laws
passed. The Industrial Policy Resolutions of
1948 and 1951 set out the goals of policy, and
the Industries (Development and Regulation)
Act of 1951 created the instruments of
implementation. The principal instruments
designed to manage a desired pattern of
investment were tariffs, industrial licensing,
and public investment. Interestingly enough
and less noticed at the time, a further set of
regulations set out the states commitment to
labour. The Industrial Disputes Act (1947)
created obstacles to retrenchment of the
core workforce in a large-scale factory and
created a formal role for the government in
collective bargaining and dispute settlement.
The principle of job protection was subsumed
under the pursuit of social justice, and while
it was in some way a reward to the politically
affiliated trade unions for their contribution
to the nationalist movement, it was also
consistent with the new regime being erected.
The state gave employers protection from
imports, and in exchange, made them accept
laws that gave workers protection.
A further important ingredient was added
in the Second Five-Year Plan, an accent on
capital goods production in the public sector.
This new element was framed within the
so-called MahalanobisFeldman growth
294 economic history of india
model, designed by the statistician P.C.
Mahalanobis. The model was an adaptation of
the HarrodDomar model. The latter had the
implication that economic growth depended
on the proportion of investment in national
income. The former inserted a distinction
between capital goods and consumer goods,
and showed that the rate of economic growth
depended on the composition of output
between these two sectors. The higher the
share of the former, the higher would be
the rate of growth. The model on which the
economy was expected to pattern itself was
an elegant way of endorsing a raw political
desire to emulate the Soviet industrialization
experience, relying on the development of
machinery and material production. Nehrus
admiration for that pathway had been known
for at least twenty years before it became a
tenet of policy.
The most direct legacy of the Mahalanobis
model was an industrial policy that identified
several capital-intensive industries in
which new capacity was to be reserved for
the government sector. These included
iron and steel, heavy plant and machinery,
telecommunications and telecom equipment,
minerals, oil, mining, air transport services,
and electricity generation and distribution.
Domestic production of capital-intensive
goods in a capital-scarce economy required
average tariffs to be raised to levels much
higher than otherwise necessary. Furthermore,
capital was rationed by making it mandatory
for private investments to take out a licence.
The government became the principal
approved channel for the import of essential
raw materials and food. To reduce the fiscal
burden, exchange rates were fixed and
overvalued. However, the private businesses
saw none of these measures, as against
their interests. Many welcomed them. A
moderate level of tariffs helped them. Private
entrepreneurs did not necessarily want to
move into the fields where the government
was to assume commanding heights. And
a growing public sector created demand for
the consumer goods manufactured in private
factories. The Nehruvian package represented
this rather benign form of import substitution.
The strategy could not succeed without
heavy dependence on cheap foreign resources.
Capital and intermediate goods, if these
were to be imported, had to be financed.
If domestically produced, these needed
foreign know-how and equipment, which
had to be purchased from abroad. India, like
any developing country in the 1950s, was
believed to suffer from a structural balance of
payments problem. Its current export earnings
are not adequate to meet its requirements
for maintenance of imports.8 Further, the
accent on industrialization and capital goods
involved a certain neglect of wage goods, and
the avoidance of food crises became a priority,
again needing foreign assistance. In this way,
foreign aid became an important component
of Indias development strategy between 1950
and 1965.
In early development literature, the need
for aid was mainly conceived with reference to
the shortage of domestic savings and foreign
exchange to finance industrialization. Two
gaps were shown to be critical in a model
popularized by Hollis Chenery and his
associates. One gap was that between domestic
savings and absorptive capacity or potential
investment without hitting diminishing
returns; and the other gap was between export
earnings and the foreign exchange needed for
productive capital expenditure.9 If the former
gap was wide enough, raising resources would
become a priority. If the latter gap was wide
enough, there was a point in looking for aid,
grant, or private capital from the rest of the
world. It is necessary to add that even if the
 economic change in india 295

former gap was small, there could be a point
in raising resources from abroad, for foreign
exchange, by providing access to machinery
and intermediates not available at home, had
usually higher productivity than domestic
resources, especially in a labour surplus society
with zero marginal productivity of labour. The
two-gap model did not sufficiently address the
question of why aid was better than foreign
investment. One feature of aid was that it was
low cost. But another was that aid came to the
governments. Implicitly, aid fitted a managed
industrialization strategy better than private
investment.
It was this latter advantage of foreign
aid that explained the dependence of
industrialization upon aid rather than private
investment. In fact, restrictions were imposed
on private investment, even as Western
governments and multilateral agencies seemed
eager to fund Indias preferred pathway of
development. The centre of international
economic relations shifted from private capital
to government capital and from trade to aid.
In 195161, 12 per cent of incremental saving,
21 per cent of incremental investment, and
13 per cent of the increase in national income
was aid generated.10 In the Second and Third
Five-Year Plans (195660, 19615), external
assistance supplied about a quarter of actual
plan expenditure in the public and private
sectors.11
Table 12.1 shows that, compared with
the colonial times, when 7080 per cent of
aggregate investment had occurred in the
private sector, in the period 195064, the
government and the private sector shared
investment about equally. Thanks to the new
policy, the governments presence increased
greatly. So did aggregate investment and
the investmentincome ratio. This was a
scenario that raised investment without visibly
crowding out the private sector. Table 12.2
shows that the strategy worked in sharply
raising the growth rate of the secondary sector,
and in turn, GDP per head, compared with
colonial times.12 Finally, Table 12.3 reveals
the most striking and decisive difference
between colonial and postcolonial India, an
end to the negative remittances on account of

Table 12.1 Average Annual Growth Rates of GDP by Sector of Origin, 18652007

GDP at Factor Cost, Constant Prices Population GDP per

Head
Primary sector Secondary sector Tertiary sector Total
18651910 1.1 1.5 0.5 1.0
191040 0.0 2.3* 2.2* 1.1 1.1 0.0
195064 3.0 6.8 3.8 4.1 1.9 2.1
196585 2.5 4.3 4.4 3.6 2.3 1.4
19862007 3.4 6.8 7.1 6.3 1.7 4.6
Sources: For Indian Union data, annual growth rate series available from India, Economic Survey, New Delhi: Ministry of
Finance, various years. For British India, see Table 3.1. *190046.
Notes: Indian Union from 1950, British India for periods before. The primary sector consists of agriculture, forestry
and fishing; secondary sector of manufacturing, mining, electricity, gas, and construction; and the tertiary sector of
trade, hotels and transportation, financial and business services, administration and defence. Where growth rates are
available by subgroup, simple averages of growth rates by subgroup is taken. BritishIndian growth rates are point-to-
point exponential rates. The pre-war data are indicative.
296 economic history of india

Table 12.2 Investment Ratio and Size of Government, 19002007

(proportion of GDP, in percentages)

Gross investment Government

Government Private Total Expenditure

190013 2.2 4.7 6.9

191339 2.0 7.3 9.3 5.2*
195064 5.3 6.1 11.4 12.9
196585 7.5 4.6 12.1 16.4
19862007 7.5 16.5 24.0 11.7
Sources: For sources on the Indian Union, see under Table 12.1. On British Indian data, see Table 3.15. * Government
revenue in National Income, 192030.
Notes: Indian Union from 1950, British India for periods before.

Table 12.3 Size of the External Sector (proportion of current GDP, percentages)

Merchandise Trade Net Foreign Aid Net Foreign Direct Net Invisibles
(export plus import) Investment
191014 20.0 0.0 0.01.0 3.0*
1956 13.6 0.6 0.0 1.2
1960 9.1 2.3 0.0 0.5
1970 7.0 1.0 0.0 0.3
1980 14.4 1.3 0.0 2.9
1990 14.6 0.8 0.0 0.1
2000 22.8 0.1 1.0 2.6
2006 33.4 0.0 1.6 5.6
Sources: For sources, see under Table 12.1. * 192030 (see Chapter 3).

budgetary transfers and factor payments owed
to expatriate capital.
Industry
Powered by foreign resources and state
ownership, the main growth sectors were
oil, gas, steel, heavy machinery, railways, and
power. The private sector diversified little,
except marginally into industrial machinery
and machine tools. Industrial entrepreneurship
came mainly from the merchantbanker
communities, who had risen to prominence
in the interwar period (Chapter 7). Foreign
capital was still predominantly of the colonial
heritage, that is, they operated as managing
agencies in tea, jute, coal, and engineering,
exporting much of the output. Several of these
firms had begun changing from European to
Indian ownership.
Industry as a whole experienced a retreat
from the world economy. Several formerly
exporting industries re-oriented towards the
domestic market. Three significant examples
were tea, textiles, and steel. In tea, the export
production ratio declined from 70 per cent in

1950 to 27 per cent in 1991. Investment and
quality improvements also receded in priority.
The domestic market in tea, apart from being
protected by very high tariffs, did not consume
high quality products so that the existing
producers were not under pressure to invest in
quality or compete on quality. Price controls
in tea exports, furthermore, discouraged
potential buyers of Indian tea. In textiles,
despite having developed a mill industry
soon after Britain, India retreated from the
world market from the 1950s. The textile
policy designed in 1950 and in force until
1985 became a notorious example of specific
intervention. Intended to shelter handlooms
from competition, it eventually paralyzed the
mills with numerous restrictions. In steel,
protection, discouragement to exports, and
public sector dominance led to an inefficient
pattern of growth that neither adequately
met demand nor fully utilized the resource
advantage that India possessed.
Mahalanobis had left the provisioning of
manufactured consumer goods out of his
model, assuming that the labour-intensive
manufactures sourced from mainly small-
scale firms would fill in the gap. The actual
structure to emerge became a curious mix
between managed production of heavy
industry and a light industry sector left to
the historical providers of these goods. In this
way, the Nehruvian vision made a concession
to its Gandhian critics. From the beginning,
distinction was maintained between the
handicrafts and small-scale industry, a
distinction that ran roughly parallel to that
between traditional and modern small-scale The overwhelming policy priority was
industry used in Chapter 6 above. Small-scale
was defined in terms of a nominal level of
investment in plant and machinery, which
level needed resetting from time to time.
Handicrafts were defined with reference to
antiquity and location.
economic change in india 297
The Gandhian ideologues held that the
handicrafts were an endangered though
culturally valuable and useful as a side
employment in the village. Therefore, they
deserved protection from competition. The
handicrafts became eligible to receive a range
of subsidies and shelters. The government
pushed the idea of the cooperative society,
in the belief that the private enterprise of the
merchant and the moneylender was parasitic,
thriving upon the artisans. Several government
bodies were set up to channel assistance.
In the 1950s and the 1960s, a significant
output of the new policy was a set of valuable
documentation projects.
Already before independence, small firms
had consolidated themselves in the processing
of agricultural materials, textiles, making
and repairing machine tools, and a few other
fields (Chapter 6).The trend was further
strengthened as factor markets strengthened
progressively in small industrial towns. When,
therefore, a decision was taken to reserve some
manufactured products for their exclusive
production in small firms (early 1960s), small
firms were well placed to make use of the
incentive. Although in the beginning, a limited
set of such products was specified and the
policy statements admitted the inevitability
of open competition once sufficient time
had been allowed for infant industries to
grow, the policy had also set in motion a path
dependence of great political force.
Agriculture
industrialization. The priority could be
justified with reference to the widely held
belief, supported by available dual economy
models of development that resource
endowment in agriculture would rebalance
itself as surplus population was transferred
298 economic history of india
to urban industrial jobs. Nevertheless, rural
resources received attention, if in a regionally
biased way.
Soon after independence, the government
embarked on a series of river-valley irrigation
schemes, the most important of which was
constructed on the Sutlej river. The project,
BhakraNangal, followed the colonial pattern
of irrigation development. In fact, this very
project had been conceived and shelved
decades before. In part the concentration
of investment in Punjab reflected a political
priority, to resettle the large number of
refugees on land as the vast majority of
them had been farmers earlier. Taking
India as a whole, however, the focus of
rural development policy in this phase was
institutional reforms, in the shape of land
reform and collective use of resources via
cooperatives and community development.
The two major aims of land reforms
were elimination of intermediary interests,
namely, such non-cultivating owners of land
as the zamindars of erstwhile Bengal, and the
imposition of a ceiling on maximum holding.
The portion of an estate that exceeded the
ceiling fell in a potential surplus, available
for redistribution to small owners and the
landless. Estimates of the surplus potentially
available exceeded the surplus available for
distribution, which again was higher than the
land actually distributed. These anomalies
revealed the political and legal capacity of the
rich owners to hold onto their land. In some
cases, it was shown in a later study, the rural
rich managed to transfer ownership while
retaining control, giving rise to a situation
where the tenants were more powerful than
the owners.13 As a proportion of operated
area, the total land distributed under the
land reform programme was less than 1 per
cent in the 1970s.14 Not surprisingly, then,
overall asset concentration in rural areas
remained high, anything between 0.60.7
(gini coefficient). Since the rural labour force
expanded at a rate not too different from
that of agricultural output, agricultural wages
hardly changed, and rural poverty did not
change either.
Redistribution of land occurred with
notable success in West Bengal. The extent
of land acquired from the zamindars was
larger here than in Bihar, another Permanent
Settlement zone, and more of it was actually
distributed. In understanding the difference, it
is useful to note that in post-Partition Bengal,
the problem of landlessness had grown worse
owing to immigration. The immigrants from
the then East Pakistan formed a promising
recruiting ground for the Communist Party of
India, especially because the ruling Congress
was often used as a lobbying platform by
the older residents to block the immigrants
from claiming state resources. The resultant
consolidation of local power under a
communist flag ensured that the zamindars
were not too successful in concealing their
excess holdings.
A year after Nehrus death, the first phase
came to an end amidst a terrible harvest
failure. Production of grain fell by 1020
per cent in the 19656 season. A war with
Pakistan, high levels of foreign debt service,
and food imports quickly drained foreign
reserves, forcing India to seek more western
aid. Even as these external and internal shocks
forced a temporary freeze upon state planning,
a new government came to power in Delhi.
CRISES, CONTRADICTION, AND
CRITIQUE: 196585
Policy
The 1960s ended with the consolidation of
power for Indira Gandhi. The famine had

underscored the dismal state of the rural poor
who had voted her to power. It was her turn
to do them a favour. One outcome of the
politically successful garibi hatao (remove
poverty) campaign was an extension of
roads, schools, bank branches, and electricity
connection in the villages, which were to
produce large spillover effects in regions that
also experienced an increase in agricultural
productivity. The populist turn of economic
policy was not all a topdown affair and owed
its political appeal also to an articulation of
rural demand for state services, a trend that
Gandhi was seemingly prescient about. A
recent paper draws a connection between the
increased supply of rural public goods and the
increased political representation of scheduled
castes in this second phase.15
In the sphere of industry and labour,
regulatory controls were significantly
tightened, and the dominance of the state in
investment much enhanced. It is not altogether
clear what prompted her to strengthen
socialistic controls, even to turn against private
business in a way. A number of influences and
political calculations seemed to have been
involved, the most identifiable influence being
Indias ideological proximity to the USSR.
Before I come to that issue, it is necessary to
see what was done in industry and finance in
the 1970s.
In 1969, leading private banks were
nationalized. Insurance companies followed
suit in 1972. Public development banks were
established to supply long-term loans to
industry, whereas the nationalized banks were
progressively pushed towards providing direct
and indirect support to rural lending. The
number of rural and semi-urban branches of
nationalized banks increased fourfold between
1969 and 1981. The state now controlled the
major part of the formal credit business. Upon
nationalization, interest rates were controlled,
economic change in india 299
not allowed to rise often, and eventually, in
the 1980s, the real rates turned negative. As
bank deposits became unattractive to the
savers, government securities that offered
tax concessions channelled savings directly
to the state. State control over banking did
make state-directed industrialization easier,
but at considerable cost in the form of lost
efficiency.16
Industrial regulation in this phase
strengthened one aim of policy that had
been only weakly pursued in Phase I, namely,
reduction in the level of concentration in
organized industry. A tighter industrial
licensing policy was introduced in 1970.
Firms and business houses possessing assets
mounting to more than a stipulated level
had to register themselves with the newly
instituted Monopolies and Restrictive
Trade Practices Commission, and seek
approvals for expansion or diversification.
Non-registration could invite penalties, and
a great deal of the energy of the department
was spent on making firms and business
houses register themselves. Towards the later
part of Phase II, a few new trends emerged.
A large number of troubled private firms
were nationalized to protect employment
threatened by widespread bankruptcy. Tariffs
were raised to extraordinarily high levels.
To compensate exporters for overvalued
exchange, export bonus and entitlement
schemes were offered. And a series of
national programmes were launched aimed
at making direct assistance available to
vulnerable rural groups.
It was in the 1970s that the true licence
raj came into its own. Were its powers used
to hurt businesses or to help them? Using
the anti-monopoly laws, expansion projects
of several large firms were rejected, on the
grounds of potential competition with a
government enterprise.17 Still, in the initial
300 economic history of india
years of its functioning, the share of the
top twenty business houses in total assets
increased. The paradox suggests that the
departmental powers to cause damage to
private business were not used systematically,
but with discretion. Permission could be
traded for financial or political consideration.
Businesses learnt to play by the rules of the
game, and continue to expand, under some
effective window-dressing. As a former head
of the monopolies commission explained
in 1982, when the commissions powers
had already been curbed, the political and
bureaucratic authorities wield very large
powers, many of which are being used neither
with any significant rational purpose nor in
bona fide public interest. These discretionary
powers are the cause of the largest business in
Delhi and in the state capitals, viz, lobbying by
various industrial, trading and other economic
interests.18
The drive towards more control owed
to domestic political calculations. But it
also owed to the emerging geo-political
conditions in South Asia, with potential
effect on aid flows, which was a lifeline for
import-substituting industrialization. In the
1960s, a schism had begun to appear in the
pattern of industrial development assistance
from foreign donors. In March 1965, three-
quarters of cheap loans from the USSR flowed
into the public sector, whereas three-quarters
of cheap loans from the USA for industrial
development flowed into the private sector.
In key sectors such as oil refinery and steel,
the government had found partnerships
with western firms and governments were
difficult to sustain. In the 1950s, negotiations
with the oil multinationals on profit margins
and exploration rights repeatedly broke
down. The major new factor in the world oil
industry in the 1950s was the emergence of
USSR as a source of supply. India welcomed
this development. Soviet aid began to enter
from the late 1950s into refinery projects.
India by then was dependent on Russian
oil. Simultaneously, restrictions on refinery
expansion were imposed on the private
companies. In the backdrop of friendship
with the USSR, the Wests support for Indian
industrial policy became hesitant. American
refusal to support a large steel project, Bokaro,
after pondering on the proposal for years,
exposed accumulated uneasiness in the US
over becoming an indirect agent in Indias
quest for socialism. The decision exposed
cleavage within American diplomatic policy
circles about cooperation with Delhi on Indian
terms. Again, as Bokaro showed, the presence
of the USSR as a willing partner saved India
from softening its own terms.
By the mid-1960s, USSR had quietly
entrenched itself as the main partner in Indias
quest for industrialization. Frictions apart,
economic choices did not mar the Western
foreign policy stance towards India until
Nehrus death in 1964. The political situation
thereafter forced a sharper polarization of
interests.
Between 1965 and 1971, the years when
India and Pakistan fought two wars, South
Asia emerged as a theatre of the cold war.
After the 1965 war with Pakistan, America
insisted on tying aid to some sort of diplomatic
commitment or initiative on Kashmir. Indias
stand on the Kashmir issue did not change. A
turning point in Indo-US relations had been
reached, which showed up in the increasing
dependence of India on Soviet arms. In
the first half of the 1960s, Sino-Indian and
Sino-Soviet conflicts had brought Indian and
Soviet military interests in the region directly
in line. After the Indo-Pakistan war of 1965,
which Pakistan fought with American and
Chinese weapons, Indias dependence on
Soviet arms deepened. In the end, the USSR

gained the most, politically, from following a
pro-India stance in the South Asian stage. The
commitment survived the death of two Indian
prime ministers in quick succession and the
removal of pro-India Nikita Khrushchev.19
After the Indo-Pakistan conflict of 1971, and
the Indo-Soviet arms treaty of the same year,
the foreign policy stance of the US under
Richard Nixons administration, turned firmly
against India.20
While the political situation pushed India
towards Soviet friendship, the economy
showed signs of strain. After the 1965 harvest
failure, the Aid India Consortium (started in
1958) extended aid on condition that India
devalued its currency. And US, in repeated
negotiations, insisted that India refrained
from criticizing its foreign policy in Southeast
Asia. Devaluation was adopted (1966), the
imperative having come from aid givers. This
raised a political controversy in the Indian
Parliament and media.21 Public representation
of foreign aid had become sensitive for the
Indian leaders. This was revealed during the
bilateral meetings discussing food aid from
the US. When asked by the US secretary of
state what questions she expected to face in
Parliament on famine relief, the new prime
minister of India answered, Have I sold the
country?22
A minority among Indian economists did
see the devaluation as a symbol of economic
realism, and a nod towards a more liberal,
market-friendly and open regime. If it was
indeed an ideological move, the effect was
short-lived. The political leadership was
not convinced yet of the virtues of a pro-
market policy, nor did the major interest
groups wholly support the liberal path. Both
big business and the trade unions proved
unwilling to accept an open trade regime.23
The crisis was dealt with by more Western aid
in the short run, and yet the political aftermath
economic change in india 301
led India towards more dependence on the
Wests enemies in the long run.
The rupee trade arrangement that evolved
out of the new warmth with the USSR made
it possible to import Soviet oil without
serious balance of payments strains. Under
this arrangement, India had the option of
repayment with Indian goods rather than
convertible currencies. The arrangement
did not automatically allow a repayment
of Soviet credits with Indian commodities.
The negotiated nature of the terms of trade
could implicitly contain an interest payment.
Eventually, it fostered a colonial pattern of
commodity specialization, with the USSR
selling machines and intermediates, and India
selling raw and semi-processed goods. Despite
these elements of cost, the barter trade had
a positive meaning to political economists
in the 1960s. Although the USSR was never
the largest trade partner (at the height of
the rupee trade, the USSR was the fourth
largest partner), it would be fair to say that
Indias economists saw the barter trade as an
instrument with which too much Western
pressure (to devaluate currency for example)
could be resisted. Dependence on the USSR
increased, and by the end of the 1960s, a
quarter of Indias exports went into servicing
debts to the USSR.
Opinions to the left of the Congress ver-
sion of populism were growing in influence
after the food crisis of the mid-1960s. A new
point of criticism was policy with respect to
foreign capital. Since foreign aid was a route
through which foreign capital entered India,
and aid represented a dependence on foreign
know-how and money, it was never totally
acceptable to many economists and politicians.
Hidden strings, it was believed, made aid an
instrument in the service of foreign capital. In
the 1970s, Maoist groups grew in influence in
some regions. Maoist critiques of Indian policy
302 economic history of india
placed the US, the USSR, private capital, and
military aid all in one basket, though Japan
seemed to be a misfit here.24 Some of this
sentiment, fed by a tilt to the East by choice
or by compulsion, survived in the intense
anti-World Bank campaign in the 1980s. At a
more sober level, concerns about technological
dependence and dualism informed broadly
negative assessments of aid.25 A survey found
sufficient basis to conclude that aid-tying
generally did lead to inappropriate techno-
logical choices.26 Partly in deference to the
anti-MNC political mood, the general stance
of Parliament towards foreign investment was
hostile throughout this period, and hardened
further in the 1970s. In 1973, the infamous
Foreign Exchange Regulation Act was enacted,
restricting repatriation of private income.
Foreign firms were disallowed majority share
ownership. Some of the largest multinationals
left India in this interregnum, whereas those
that remained needed to export a share of their
output to prevent a takeover or sale.
With all these twists and turns, Phase II
produced the worst performance by every
benchmark. If oil is excepted, Indias trade was
pushed to ever greater insularity (Table 12.3).
Since exports did not pay for foreign loans, and
foreign investment was negligible, the major
part of new aid contracted went into debt
service. Over and above a persistent exchange
shortage, there began a seemingly permanent
downward slide in average growth rates.
While all growth rates decelerated, increase
in population growth rate depressed GDP
growth per head to levels that were hardly
more impressive than those recorded in the
prewar era (Table 12.1). The government did
take the commanding heights in this phase and
accounted for almost two-thirds of aggregate
investment (Table 12.2). Investment rates
increased whereas capital had become less
productive than before.
In Africa and Latin America,
macroeconomic instability and debt trap
reinforced one another to bring an end to
aggressive import substitution. India followed
a similar path, but did not face a similar
predicament, for two safety valves became
available. One of these was the rupee trade
arrangement, and another was remittances.
While the two oil shocks had predictably
recessionary effects on an economy dependent
on imported oil, the economic boom in the
Persian Gulf saw recruitment therein of Indian
migrants as workers. The exchange shortage
was beginning to ease a little from the second
half of the 1970s. The slight rise in invisibles in
this phase reflected the new source of earnings
(Table 12.3).
The downward drift of GDP growth owed
to industrial stagnation above all. Growth rates
in manufacturing had been above 7 per cent
per year between 1956 and 1966, and dropped
to less than 5 per cent in 196675. The decline
being a lasting one, it could not be explained
by the variables usually invoked to explain
short-term fluctuations, such as harvest failure
or budgetary crisis leading to sudden changes
in government investment. To what did it owe
then?
Industry
Inside the academic mainstream, opinion
was divided on the origins of the industrial
stagnation. The Marxists proposed that
unbridled capitalism had given rise to an
under-consumption crisis.27 According to
the neo-liberal school, excessive government
investment in projects that yielded low private
and social returns was responsible.28
In this view, import-substituting
industrialization was beginning to generate
its own contradictions. The extreme form
of import protection practised in India, with

average tariff rates nearing 100 per cent, hurt
export. Whereas freer trade in the colonial
period had given domestic industry access
to new technologies and helped them learn,
restricted trade made learning difficult
and reduced competitiveness. Inefficiency
spilled over. For example, the relatively
high cost of locally produced machines
raised the cost of goods made by using those
machines. Comparative advantages were
ignored. As resources were channelled into
non-competitive capital goods, potentially
exportable labour-intensive manufactures
were denied capital. Resources, thus, were
made to move to sectors with lower return to
capital and lower employment potential. The
quality of light manufactures and consumer
goods such as cotton textiles, despite a strong
historical legacy, was poor by world standards
and the producers of these goods faced
bankruptcy.
With employment growth stuck at near-
zero levels, in the older industries in Kolkata
(Calcutta) and Mumbai (Bombay), industrial
relations soured. One source of instability was
the spreading bankruptcy in the oldest textile
and engineering factories. In the 1970s and the
1980s, labour laws were made more stringent
than before. Unable to retrench or redeploy
labour, the employers became reliant on casual
labour, which carried an aura of illegality and
exploitation. Trade unions, in their turn, were
a field of contest between regional political
parties and local leaders, many of whom tried
to break the monopoly of recognized unions.
These new dynamics engendered some of the
largest and most violent industrial disputes,
such as the Bombay Textile Strike (19823).29
From the mid-1950s, the industrial network
based in Calcutta, one of the oldest and
wealthiest in British India, had begun to
lose its lead, and by the mid-1960s, it started
showing signs of regress. Industrial production
economic change in india 303
stagnated, employment fell and capital began
to fly West Bengal.
Large-scale industry was squeezed by
another means. In 1977, for the first time in
independent India, a non-Congress party with
a significant presence of Gandhians within
its leadership, formed the government in
Delhi. The experiment lasted only a few years.
Two of its limited legacies were enlargement
of state marketing for the handicrafts, and
enlargement of the scope of small-scale
industry reservation. An attempt was made to
make the policy universal and with as much
bite as possible. By the end of the 1980s,
virtually [a]ny item that can be produced
by small manufacturers is banned from
production by any other means irrespective of
cost effectiveness in production, technological
progress, international competitiveness,
and overall industrial health of the
country.30 Through a variety of instruments,
implemented by a number of agencies and
involving both fiscal support and quantitative
restrictions, numerous product lines came
to be reserved for production in small-scale
industry.31 In the 1980s, the number of such
products exceeded 800.32
Manufacturing income showed signs of
recovery in the late 1970s. The exact reasons
for the mild and almost invisible turnaround
remain obscure. The most plausible candidate
was the increased flexibility in the labour
market that followed the failure of some of
the industry-wide strikes of 19812. There
was little improvement, however, in industrial
employment. In the 1980s, organized
manufacturing saw the unfolding of a
syndrome that later became known as jobless
growth. Even as production and investment in
manufacturing picked up, employment growth
was near zero. A large literature developed
to explain the slow employment growth,
comparing the 1980s with the acceleration in
304 economic history of india
employment in the 1990s. The explanations
depended on how trends in real wages were
interpreted. Real wages grew quite rapidly in
the 1980s and sluggishly in the 1990s. In one
view, employers in the 1980s adopted labour-
displacing technologies, partly in response
to widespread militancy, this led to a slow
employment growth but rapid wage growth.
In another view, the rapid wage growth was
a direct outcome of labour militancy, and
employers looked for and found ways of
avoiding job expansion by subcontracting
work to the informal and unregulated sector.33
The economy was not all bad news,
however.
Agriculture
The 1966 harvest failure exposed the neglect
of production conditions in agriculture in
Phase I. The fear of famine was ever present,
and a second drought in 1972 revived these
fears, even though on this occasion, food
imports were kept in check. The sense of
insecurity about food supplies led to two long-
term patterns of changethe green revolution,
and the public distribution of food.
Administrative energy in the 1960s was
redirected to implementing a new agricultural
technology consisting of high-yielding
varieties of wheat and the application of
chemical fertilizers to which these seeds, more
than the traditional seeds, were responsive.
With the exception of the new generation
seeds, the green revolution was based on the
idea of an input combination that had old
roots and had been demonstrably successful in
East Asia. Contributors to an interwar period
academic debate on rural regeneration were
aware that waterseedsmanure combinations
could be made more productive in India.
The problem was that water could not be
easily and cheaply harvested everywhere.
The success of any new package of fertilizers
and high-yield seeds, therefore, had to be
restricted to regions that could access water
at relatively low cost. Principally Punjab and
the western UP endowed with canals, but also
the south-western coast, coastal Gujarat, and a
few other smaller regions, saw the full effect of
the new strategy unfold. It was not, however,
the volume of water alone that mattered to the
success of the strategy. Of crucial importance
for fertilizer application was the degree of
control on the volume. Wells, rather than
canals, were the key. Between 1950 and 1970,
policy effort to alter production conditions
had followed a path that had been set out
by colonial engineers in the nineteenth
century, namely large-scale canal construction
in river valleys. These projects, and the
complementary private investment in wells,
ensured that the first green revolution after
1947 remained more or less confined to the
canal-endowed regions.
Protection offered to small firms, and
capital accumulation in the green revolution
regions, led in Phase II to industrial
entrepreneurship diversifying away from the
merchantbanker communities and involving
new communities that had made their money
in land, such as the Kammas of Andhra
Pradesh, Patidars in Gujarat, and Gounders in
Tamil Nadu.34 The scope for Schumpeterian
entrepreneurs to emerge was possibly still
restrained by the policy on small firms, which
entertained a bias against becoming big. Much
of the new enterprise and investment stayed
small and local.
The beneficial effects of the new
agricultural strategy were concentrated in
impact, whereas the general agricultural
picture remained depressing in the 1970s.
Nearly a decade into the green revolution,

a careful assessment of agricultural trends
concluded, growth rates of production
have not increased, and may have in fact
fallen.35 The dominant tone in academic
discussions on agricultural change was
critical about the green revolution. The
academic Left saw it as an unwelcome form
of penetration of capitalist forces in rural
relations. It went without saying that any
agricultural development policy that focused
on enhancing land productivity would
intensify inequality between the landed and
the landless almost by definition. Moreover,
a seedfertilizer package, being highly water
intensive and sometimes in need of deep
ploughing, used up a lot of capital, and
increased the disparity between those with
more access to capital and those with less.
Such a strategy also used up canal water,
the access to which resource required some
political capital and muscle power.
The peasant economy by and large was
almost inert. Whether it was an effect of the
land reforms or the increasing poverty of the
small peasant, the proportion of cultivated area
divided into small plots (less than 2 hectares)
increased (by 6 per cent) in the 1970s, except
in the green revolution areas, where the small
fared better.36 Rural poverty remained high
and real wages in agriculture hardly moved
throughout the 1970s. There was, therefore,
no significant criticism for Indira Gandhis
support for the small peasantry. Two ideas
that came to dominate applied economics
scholarship in the 1970s that the small
farmer used land more efficiently than the
large, and that the large farmer exploited the
small by interlocking land, commodity, and
credit marketslent intellectual ammunition
to institutional reform.
The appeal of the institutional road to
rural development, therefore, remained
economic change in india 305
strong. When the Communist Party of India
(Marxist) formed a government in West
Bengal in 1977, it quickly set in motion laws
to secure the rights of more than a million
share-cropping tenants, a move that saw nearly
8 per cent of operated area vested in state and
redistributed to new title holders. Possibly the
most radical institutional reform in agriculture
in independent India, this step was later seen
as a necessary precondition for wage increase
and poverty reduction, and possibly increased
private investment as well.37
In this phase, the government also
intervened in the sphere of distribution of
food, a step that eventually came to serve
very different goals. Although in its original
aim the public distribution system was meant
to serve poor consumers when food prices
increased, as the green revolution took root an
additional aim was to stabilize and shore up
post-harvest prices when the harvest was good,
in deference to powerful farm lobbies. Special-
price shops then sold this food to card holders
at a subsidized price. While pursuing two
objectives, helping the farmers and helping the
poor, the government ended up paying a heavy
fiscal cost.
A wind of change had begun blowing in
the first half of the 1980s, when Indira Gandhi
was still the prime minister. Several measures
were introduced in this phase that could be
seen as business friendly and export friendly.
The anti-monopoly provisions were relaxed,
the exchange rate was allowed gradually
to recover parity with the market rate, and
hostility towards foreign investment was
reduced. Preparations were made for Maruti,
the iconic new generation car, to be made by a
joint venture between the state and the Suzuki
Company. There was no full-scale structural
adjustment yet. But the wind was gathering
strength.
306 economic history of india
TRANSITION: 19862010
Policy and Performance
In the 1980s, the experience of the Asian tigers
served as a reminder of opportunities missed.
Influential assessments of the regulatory
regime revealed the costs of statist and
autarkic policies. It was shown, for example,
that total factor productivity growth had
declined between the 1950s and the early
1980s.38 Research done in the mid-1980s
showed how the senseless restraints upon
the textile industry had failed to produce the
desired outcome, namely, a regeneration of the
handicrafts, while crippling otherwise healthy
cotton mills.39 In 1985, the draconian Textile
Policy was relaxed. In 1984, 100 per cent
foreign ownership of business was allowed
again.
External circumstances added to the
pressure. By 1985, the USSR was in the throes
of its own industrial collapse. The collapse of
the rupee trade, profoundly consequential
in one view,40 meant that any subsequent
investment strategy that relied on imported
technology would have to be financed with
export income. When deregulation and trade
reforms were generalized and taken further in
the 1990s, the push had come from a balance
of payments crisis. About 1995, the easing
of quantitative trade restrictions followed
the Uruguay round of agreements, again
under some external pressure. The end of the
Multifibre Arrangement 10 years later forced
removal of quantitative restrictions on textiles
and clothing.
The general pattern of macroeconomic
transformation in Phase III had two
components, globalization and the retreat
of the state. The package in the 1990s had a
composition similar to that of any induced
structural adjustment programme, namely,
liberalization of exchange rates, reduction
in tariffs, easing industrial regulation, and
rollback of state investment. In the second half
of the 1990s, the reforms extended to financial
deregulation, privatization of government
firms, removing price controls, privatization
of the services provided by the utilities, and
industrial relations. Long-standing restrictions
on foreign private investment were eased early
in the 1990s. Another major field of reform
concerned the relationship between the
Reserve Bank of India and the government.
Earlier the bank had little autonomy in
respect of meeting demands made on it by
the government. The relation was made more
contractual, and the autonomy of the bank
reaffirmed in the 1990s.
GDP growth rate increased in Phase III,
despite a recession in the late 1990s induced
by the Asian crisis and domestic political
uncertainty (Table 12.1). More significantly,
combined with a deceleration in population
growth rates, the effect upon GDP growth
per head was larger than before. The GDP
growth was remarkable also because it was
sustained by unprecedented growth rates
in manufacturing and services, and seemed
progressively less responsive to harvest shocks.
The open economy regime saw considerable
success in the export of manufacturing,
and notably, export of skilled services
showing up in the invisibles account of the
balance of payments (Table 12.3). Foreign
investment flows increased more than twenty
times over between 1990 and 2008, and its
character changed from mainly investment
in firm ownership to mainly technological
collaboration. On the other hand, the liberal
regime saw, for better or worse, a retreat of
the state from industrial investment, even
infrastructural investment, even though
foreign concessional loans, which in recent
years mainly flowed into infrastructure and

public goods, partially compensated for the
retreat.
The problems of state finance afflicted the
regional state governments especially badly.
In the first half of the 1990s, the fabric of
federalism, so far held together by dominant
governments at the centre, became strained
as coalition of regional parties called the shots
in the new regime. At the same time, almost
every measure of the soundness of the state
governments showed downward drift.41 The
problems owed to a combination between
the legacies of Phase II and the reforms
themselves. The major part of the states own
tax income was derived from the sales taxes,
which were often waived in a competitive bid
to attract industry. The states power to borrow
was limited, and was curbed in the early 1990s.
In some ways, then, the states became more
dependent than before upon central assistance.
The division of assistance was based upon
distributional rules that gave greater weight to
poverty and levels of backwardness, in effect
discriminating against fiscal and economic
health. Some of the industrially endowed states
paid a price for the reckless nationalization
of bankrupt enterprises, and expansion in
public undertakings, that they had indulged
in Phase II. The rate of return on investment
in state-owned businesses was low.42 To this
burden were added waived farm income
taxes and lost taxes from alcohol in states that
prohibited its consumption. As new enterprise
formation picked up in the 1990s, the fiscal
weakness of the state also owed to the choices
made by new firms about industrial location.
The states uneven response to the challenges
of institutional reforms, it is believed, made
business more selective about location.
Given that changes in labour regulation
were highly variable regionally, delicensing
resulted in a sizeable reallocation of industrial
production from states with pro-worker labor
economic change in india 307
institutions to states with pro-employer labor
institutions.43
The intense focus in Phase I upon
industrialization and in Phase II upon rural
infrastructure and subsidies had left in
neglect roads, railways, ports, electricity,
telecommunication, financial services,
schools, and hospitals. The quantity of service
providers had grown but the quality of service
had become steadily poorer. Much of this
infrastructure was in charge of the states
who found themselves bankrupt, at least
partly owing to the fiscal burden that rural
development and providing security to rural
incomes imposed on them. A well-known
critique of post-colonial policy persuasively
argued in the backdrop of the reforms, that
the neglect of social expenditure had deeper
historical roots and had in effect compromised
the capability of many poorer Indian citizens.44
Throughout the colonial and the post-colonial
times, primary education had been neglected
by the state, which saw higher and technical
education to be its priority. Private effort and
capital on public welfare and public goods also
remained generally exclusive and sectarian
in character in Indian society. The result
was a slower change in measures of human
development during a time when plans for
rapid economic development were put into
effect.
Connected with the fiscal and regulatory
policy issue, there was also evidence of
an increased regional inequality. Foreign
investment was regionally biased. Regions
with a higher capital endowment were more
attractive destinations for both domestic
and foreign capital. There was also perhaps
increase in personal income inequality.
Critics of the reform pointed at a finding
that the growth of wages and employment
slowed in the 1990s, as one would expect in
an environment that provided business with
308 economic history of india
more freedom to locate in states offering pro-
employer regimes.
Increasing inequality is further suggested
by the pattern of change in rural livelihoods,
though much of this change is not a direct
outcome of the reforms.
Agriculture
At the end of the 1990s, agriculture still
accounted for a third of national income and
a larger share in employment. A persistent
criticism of the reforms process was that
the largest earner and employer continued
to suffer neglect. In order to see this in the
appropriate context, it is necessary to note the
pattern of change in this sector in the 1980s.
A permanent legacy of the first generation
green revolution had been subsidized supplies
of inputs. Credit was made available from
nationalized banks. Water, and the energy
spent on its extraction were subsidized by
nationalized electricity companies. And
fertilizers came from nationalized producers.
The most effective form of water supply was
wells. Wells might have remained traditional
and confined to the riparian zones until the
end of the 1970s, but cheap credit induced
construction of tubewells in other regions,
relatively well endowed with groundwater.
Between 1970 and 1995, the proportion
of villages receiving electricity increased
from 3490.45 The extension of electricity
encouraged the use of electric pumps to
distribute water. The dominant mode of
irrigation development, therefore, changed
in the 1980s from the historic package of
government canals and private wells of
traditional construction toward the more
democratic tubewells and pumps. The new
technological regime helped small farmers
relatively more than it did the big farmers,
because there were small economies of scale
with tube wells, and because the source of
the water was located close to the farms
themselves. Tubewells enabled greater control
of the farmer over water than was possible
with canals. This second green revolution,
therefore, could spread from already well-
endowed regions such as Punjab or UP to the
poorer peasant economies of the East. Viable
rice seeds, which became available from this
time, consolidated the second green revolution
in the paddy areas.
The combined effect of the two waves of
agricultural transformation was nothing less
than revolutionary. Agricultural production
and income increased between 24 per cent
per year between the 1970s and the 1990s.
The spectre of chronic food shortages and
import dependence more or less disappeared.
Average rural incomes increased. The
percentage of the rural population living
below the officially set poverty line had
hovered in the range 5065 in 195070; the
first green revolution started a declining trend,
bringing the ratio to about a third at the end of
the 1980s, from which level it declined further
in the 2000s.46 That dramatic rates of increase
in land productivity were made possible by
the huge extension in the area sown with a
basket of high-yielding seeds (the five major
seeds included rice, wheat, sorghum, pearl
millet, and maize), and nurtured by well water
and chemical fertilizers, in turn producing
dramatic effects on wages, non-farm incomes,
poverty, and consumption, is now beyond the
realm of serious academic dispute.
In a less evident way, the pattern of rural
livelihoods changed, and a complementary
relation developed between farms and
factories. An early optimistic assessment
of the first green revolution pointed out
emerging linkages between farm income
and non-farm production.47 Confirming the
prediction, later research found that within the

regions that experienced significant change
in land yield, agriculture had grown more
reliant on manufactured inputs and urban
services than before, inducing higher wages
in the secondary and the tertiary sectors,
in turn raising demand for farm produce.48
Continued low wages in the poorer areas
exerted an attraction for small-scale factories,
giving rise to a very large increase in the
1990s in the share of non-farm income and
reduced dependence on farm incomes in rural
households.49
If these virtuous circles were good news,
other fields of serious competition and
conflict between farms and factories were
beginning to open up. Two such fields were
scarce land and public resources. Land was
subject to competing claims by peasants
and urban developers. Competing claims
on the public finance also intensified. When
the economic reforms set in, the second
green revolution had been at the limits of its
potential, whereas the potential for conflicts
over resources was beginning to intensify.
This weakening of the drive provided the
immediate context of the charge that the
reforms bypassed agriculture.
Sometime in the mid-1990s, diminishing
returns kicked in. Total factor productivity
growth, which had accelerated every decade
from the 1960s until the 1980s, decelerated
sharply.50 In parts of eastern India where
groundwater resources had been recklessly
exploited by farmers, the water table fell, and
incidence of arsenic poisoning increased.
Critics of input subsidies argued that water
use was not responsive to the true cost of
water, leading to over-use. As the water table
fell and electricity supply became unreliable,
farmers in some regions started shifting back
to a mainly rainfed agricultural regime.51
Through distorted prices, chemical fertilizers
had been allowed to replace organic manures
economic change in india 309
almost completely, imposing ecological stress.
With land being of greater value than ever
before, competition and bargaining between
rival claimants for farm land, which included
farmers, urban developers, and industrial
interests, threatened to become politically
explosive. With the population still growing,
by the mid-2000s, India seemed in need of a
third agro-biological revolution. Some believed
that genetically modified seeds would provide
an answer to this need. Others believed that
transgenic seeds were part of the problem
rather than the solution. Among other points,
the debate over transgenic seeds, which were
market supplied rather than state supplied and
subsidized, revolved around the desired and
feasible extent of deregulation of agricultural
policy.
On the other hand, the feasibility of
any state directed technological change
needed to consider the fact that the green
revolutions thus far had been a fiscal burden
on a staggering scale, the true extent of which
remains unknown. In the 1960s and the
1970s, direct investment in canal construction,
rural infrastructure, research laboratories
and universities constituted the main forms
of public expenditure to sustain the effort.
These were visible expenses that came directly
out of the budget. Between 1980 and 2000,
expenditures were more indirect in nature,
and therefore less visible than before, and took
the form of input subsidies and the variety
of quasi-state agencies that administered
them. Huge aid was doled out in the shape of
subsidized water, electricity, fertilizers, credit
write-offs, price support, and zero taxes. Input
subsidies increased from less than 1 per cent
to more than 8 per cent of agricultural income
between 1980 and 1999.52 The 1990s, the first
decade of economic reforms, saw sustained
conflict between the farm lobby and reformists
over the scale of input subsidies. Conflicts
310 economic history of india
such as these sharpened a diversity of interests
of the farm and the non-farm sectors, which
predicated on their common dependence on
public resources.
There were other conflicts too.
Although the public distribution system
had undoubtedly contributed to stabilizing
consumption by the poor, the costs of this
enormous and unwieldy institution were
large, and looked increasingly pointless
when the prospect of basic shortages had
disappeared. Even after the subsidies paid
to maintain it, critics argued, it was not clear
that the policy helped the poor consumers
more than it helped the rich farmers. While
food disappeared from market channels
to government storage, an inefficient and
wasteful public storage system ensured that
starvation persisted in the poorly endowed
regions with inadequate communication
infrastructure. Localized famines and
starvation deaths persisted as grain rotted in
public warehouses.53 Under these criticisms,
in the late 1990s, reforms designed to achieve
better targeting were introduced, though its
impact on aggregate poverty measures is yet to
be estimated.
Furthermore, both the first and the second
green revolutions succeeded in regions
where alluvial soil, surface and groundwater
permitted water harvesting, and where
complementary investment in rural roads
and electricity was possible. It was a great
deal weaker in regions where well irrigation
remained costly even with state aid (regions
within arid peninsular India), and where
the state failed to invest in complementary
infrastructure (Bihar, for example). There is
now a well-known argument that the marginal
returns from state investment should be
higher in the dry areas compared with the
more endowed irrigated areas.54 And yet,
the technological options with a potential
effect on returns from agriculture in the dry
zones are limited, and not all can be easily
pursued either under state direction (as in
the first green revolution), or with reliance
on the market (as with the second green
revolution). Conservation of soil and water,
and the institution of viable water rationing,
require endogenous collective action. Indeed,
these fields have seen participatory action take
deeper roots since the 1990s, often under the
direction of innovative non-governmental
organizations.
The aggregate picture is one of worsening
inequality. In the more endowed areas, the
direct benefit of subsidizing fertilizer and
underpricing water and power goes mainly
to fertilizer producers and high-income
farmers while having negative effects on the
environment and production, and even on the
income of small farmers.55 The differential
in land yield between the best and the worst
performing agricultural zones is more than
seven times.56 The differential between
irrigated (more than half of cropped land
receives irrigation) and rainfed areas in
respect of incidence of rural poverty remains
significantly wide, and the incidence correlates
negatively with the percentage of cropped area
irrigated.57 The ratio of yields between mainly
irrigated crops, such as wheat and rice, and
mainly rainfed crops, such as sorghum, has
diverged in the last twenty years. Rural poverty
has remained entrenched in these regions. A
recent article has shown that initial conditions
in the shape of agro-ecological characteristics
and endowments still deeply influence the
capacity of induced agricultural change to
reduce poverty in India.58 Land conservation
efforts on which the agricultural future of
the dry land critically depends, involve a
level of subsidization that cannot possibly be
extended to all farmers in the arid zones.59
Finally, resource management strategies such

as watershed development often involve trade-
offs between successful conservation and
increasing inequality between the landed and
the landless.60
The economic reforms by-passed
agriculture, having failed to address these
obstacles. There was another sense in
which the reforms bypassed agriculture.
Notwithstanding the scale of agricultural
production in the region, agricultural export
plays a rather small role in shaping incentives.
Exports constitute not more than 1518
per cent of agricultural output. Until 1995,
export of agricultural goods was more or less
prohibited. Under the shadow of colonial
era economic nationalism, which had made
a case that food export worsened famine
by raising prices (Chapter 4), prevention
of food exports acquired almost religious
force in postcolonial policy. The critics of
neo-liberal policy continued to argue that
a more open trade regime would lead to a
sustained rise in food prices, depression in
wages, and worsening poverty, possibly from
a misreading of the observed correlations
between these variables.61 Long-term estimates
of competitive advantage suggest that a
liberal trade regime should see India export
its major grains without necessarily running
into domestic price stress.62 Persuaded by
this line of argument, the late 1990s did see a
partial opening up of the borders, which were
quickly closed again, as world market price
fluctuations created too many uncertainties
at home. At least some liberal economists
would be persuaded by the argument that the
richer world protects its farmers from these
instabilities, placing undue burden of risk upon
farmers of the poorer world.
Segments within the primary sector,
however, did become export oriented. In the
Uruguay Round Agreement on Agriculture,
tariffs in the developed markets were
economic change in india 311
reduced by 3545 per cent on fruits and
vegetables, flowers, and other agricultural
products. Following this development,
farmers and orchard owners in India began
diversifying into non-traditional, high-value-
added products such as fruits and flowers.
Floriculture emerged as a money-spinner
in Southern India, and is set to grow much
more. Other success stories included basmati
rice and soybeans.63 It is expected that the
conversion of grain lands into orchards and
tree crops is a trend that will increase in the
near future.
Industry
Manufacturing was an engine of growth
in India in the 1970s and 1980s. Since the
1991 economic reform, it appears that the
speed of the engine has slowed down.64
This paradoxical and somewhat rhetorical
statement makes a reference to the limited
efficiency gains in manufacturing recorded in
the 1990s. In fact, industry experienced such
turmoil and shakeout that any generalization
about the gains from reforms would need
to be qualified. There were three forms of
turmoil, in particular; at least two of these were
embroiled in academic debates. First, large-
scale industry displayed a mix of bankruptcy
and success. There was sharper inter-firm
polarization, as new entrants had better access
to foreign capital, technology, and flexible
labour markets, whereas many incumbents
had to adapt to increased foreign competition
while still burdened with large labour overhead
and generic machinery. Second, small-scale
industry displayed a similar mix of success and
failure. The revival of manufactured exports
came mainly from small firms, but the general
picture of small firms was uncertain. Third,
organized labour was caught up between
contradictory tendencies, namely, intense
312 economic history of india
resistance to legal reform, and increased
flexibility in employment practices.
In large-scale industry, efficiency gains
were distributed in an uneven fashion between
industry sectors.65 Some of the gains made
until 1996 were lost in the recession. But
above all else, the re-integration with the world
market drove many weak and overcapitalized
firms to the wall, and exposed several forms
of institutional deficiency. Important industry
sectors to decline were cotton spinning and
weaving in mills, jute spinning and weaving
in mills, and synthetic textiles. A few groups
within machinery and metallurgy declined
too, chiefly ferrous metals. In synthetic textiles
and engineering, decline was attributable to
tariff reduction. But in cotton and jute textiles,
reforms marginally added to a more long
standing and endogenous decay. On the other
hand, in all these industries, deregulation of
technology import offered a few firms that
were better managed, more creditworthy, and
already technologically advanced, the chance
to globalize with success. Thus, the reforms,
as such, thus, had the effect of a sharper inter-
firm polarization.
The dice was loaded for new firms in new
industries located in new industrial clusters.
These firms benefited from access to export
markets and imported technologies, and
did not have a labour overhead to deal with.
New firms also had better access to foreign
collaboration. In the 1990s, a number of
foreign branded firms re-entered India. After a
brief time when partnerships between Indian
and foreign firms ruled most such enterprises,
a series of mergers and acquisitions took
place, and many Indian consumer brands
suffered creative destruction.66 One of the
early spillover effects of foreign investment
was the formation of a new paradigm of
agricultural trade under contract with a
dominant industrial monopsonist. Pepsico in
Punjab pioneered the model, which was later
replicated elsewhere.67
Another kind of new, global firms emerged
in Phase III, engaged in knowledge-intensive
sectors and producing for the world market.
Their success owed partly to the positive
legacies of Phase II and partly to the
weakening of obstacles erected during Phase
II. In pharmaceuticals, implicit protection
in the old regime, in the shape of process-
patents, had fostered indigenous research and
development. After the reforms, this nurturing
enabled several firms to emerge from the
experience with superior research capability.
The accent on higher and technical education
throughout Phases I and II helped build
capability in information technology. The
knowledge industry reshaped the concept of
entrepreneurship in India. It heralded an end
of the community-bound entrepreneurship
that had been the standard of big business
since its inception in the nineteenth century.
In Phase III, a number of new trends in
entrepreneurship matured. One of these was
the rise of the engineerentrepreneur. Perhaps
the greatest of all engineer-promoted firms was
Infosys, which had been started in the 1980s
by a group of Indian Institute of Technology
graduates. Another interesting trend involved
tie-ups between the non-resident Indian
businesses abroad and new firms in India, a
model that worked with particular success in
the software and business services sector.68
The software experience underscored the high
return that was possible on venture capital in
specific sectors.
Export success in manufacturing, however,
initially built on a segment of small-scale
industry. The major industries experiencing
expansion were textiles and clothing, leather,
gems and jewellery, processed food, plastics
and plastic intermediates, machine tools,
pharmaceuticals, and the handicrafts. Again,

export success owed to strengths acquired
in the past and opportunities created in the
present. In textiles and clothing, dominated
by small firms, the reservation policy was
helpful to the existing firms, whereas trade
policy reforms enabled them to access world
markets and technologies better than before.
The quality of clothing produced from India
improved dramatically as a result. Another
export success story, again involving samll
firms, was the handicrafts. In Phase III, the
protective attitude towards handicrafts lost
following. Interestingly, the handicrafts
themselves seemed to jump out of the world
of emotions into the commercial centrestage.
They became a great export success. The
world market for ethnic goods rediscovered
Indian designs and products. In the process,
a large number of new stakeholders
emergedNGOs, private firms, innovative
government departments, designers, design
institutionswho started fashioning a
different discourse on the crafts, building on
their strengths rather than their weaknesses. As
the crafts rejoined the commercial mainstream,
they also became subject to distortions created
by a combination of breakneck market growth
and weak institutions. Inequality increased
between the workers, who were sometimes
new migrants from poorer regions, and the
capitalists and merchants. The crafts were
integrated in the spheres of influence of
corrupt tax and customs departments, and the
vast tourism mafia of northern India, while
possessing fewer political resources than their
counterparts in the formal sector to resist these
parasitic agents.69
Notwithstanding segments of export
success, the general picture within the small-
scale sector was very mixed. The overall
growth rate of small firms decelerated in the
1990s.70 The policy of product reservation
for the small firm, it was argued, harmed the
economic change in india 313
interests of those whom it sought to protect. It
had created perverse incentives discouraging
small firms from expanding in a legal way, and
also created obstacles for larger firms to enter
the reserved areas, that is, erected barriers to
utilization of economies of scale. These down-
the-scale biases led to poor technological
effort, poor quality control, and poor brand
creation in fields covered by reservation. While
a Textile Policy (2000) de-reserved garments,
de-reservation on a more general scale
remained politically unpalatable until much
later. Only in the early 2000s did this policy
see some hesitant steps towards deregulation.
In current scholarship on small firms, the
problems of technological backwardness and
slow adaptation are stressed, and variously
attributed to the weight of bad practice in the
past, the low cost of labour, and the low skill
component of the workers.71
Trends in employment and labour raised
questions about the welfare effects of the
reforms. Statistical assessments point at the
contradictory results that come from using
different datasets on wages.
Critics of the reforms argue that wages
and employment growth decelerated in the
1990s. However, a slowdown in employment
can be interpreted alternatively as stagnation
in demand for labour or as a decline in supply
of labour, in turn, a result of demographic
transition and increased enrollment of
young adults in schools.72 In the same way
that reforms affected the firms, an opening
up following upon a long period of a closed
economy is expected to produce mixed effects
on labour as well. Economists often analyze
such opening-up effects with the help of the
StolperSamuelson model on the interaction
between trade and factor markets. The
prediction of the model is that the demand for
the abundant factor and goods intensive in that
factor, should rise after liberalization, and the
314 economic history of india
demand for factors that had been scarce but
protected before, should fall. Paradoxically, in
India, which had protected industries intensive
in scarce capital and skilled labour, skill
premium seemed to increase after the reforms,
and employment of skilled workers increased
at some cost to unskilled and poorly paid
workers. Alternative interpretations, based on
complementary interdependence between
technology and skill, could explain the new
pattern.73
If the aggregate picture is controversial,
there is no question that the employment
growth rate rose in large-scale industry in
Phase III. Yet, neither the employers, nor the
workers, not even the economists, seemed
happy about the fact. For the pro-reform
economist, rigid labour laws showed the
pitfalls of an over-cautious and gradualist
pathway of reforms. For the employers, the
fundamental contradiction in the economic
reform process was that it had reduced
protection but not changed labour laws. The
quid pro quo between the state, employers, and
the unions, started in Phase I, was strained
in Phase II, and broke down in Phase III.
The formal sector now wanted de-protection
of jobs, and de-reservation of small-scale
industry, especially in areas where skilled
labour advantage or scale economies were
potentially large. The organized trade unions
felt that since the reforms made it possible
for new firms to bypass rigid labour laws, any
move towards a formal restructuring of the
laws must be resisted. In this endeavour, the
political stance of the state governments played
a critical role. Initially, a pro-worker stance
seemed the default position adopted by nearly
all states, but in the 2000s, divisions emerged
as some states proceeded much further
than others in creating employer-friendly
labour regimes. New policy instruments,
such as special economic zones, played a role
in pursuing the agenda. So did a series of
pro-employer court judgments against the
application of the old labour laws.74
New industries and firms, thus, spawned
a different set of bargaining institutions, and
a different profile of labour. In few firms that
started after 1992 was there a presence of the
national trade unions, even any trade union
at all. Knowledge-based industries, such as
pharmaceuticals or software, did not involve
a large shop-floor workforce, and thus did not
fit the traditional mode of labour organization
and action. Many firms in cotton yarn and
food processing had started in semi-rural
areas, outside older labour agglomerations.
In the export processing zones, labour was
markedly out of the sphere of influence of
protective unions and politicians. In the export
processing zones, again, a larger component
of the workers were women, a trend that some
authors attribute to the employers desire for
a relatively vulnerable and non-unionized
workforce.75 There was, finally, the growth of
a new mindset. The legacy of nationalism that
saw trade unions as weapons of the weak was
on the wane. Organized labour was more easily
seen as groups fighting for sectional interests,
sometimes at the cost of national interest.
The business press took a reformist stand on
law. The government as well as the judiciary
followed a broadly non-interventionist role in
respect of job loss and enterprise restructuring.
In these various ways, the ground from
beneath the national trade unions shifted, and
a process followed that can be best described
as disempowerment of organized labour.
Disempowerment took three concrete
forms: voluntary retirement, contract labour
law, and case laws. In the early 1990s, those
firms threatened by bankruptcy which
survived the crisis did so, among other means
by shedding labour via voluntary retirement.
Large and profitable firms universally reduced

their core, that is, the permanently employed
and unionized labour force. The work formerly
done by the core workforce was outsourced
to other firms or done by contract labour. In
some cases, outsourcing and contract labour
were identical strategies.
LOOKING FORWARD AND LOOKING
BACK76
If there is a general lesson offered by this brief
tour of post-colonial India, it is that, initial
conditions matter. Just as each one of the
three phases built upon, reacted to, or was
constrained by inheritances received from the
previous period, so did the entire post-colonial
times depend on conditions of colonial times.
The changes that were brought about upon
those initial conditions were revolutionary,
and any claim that modern and colonial India
are fundamentally similar units would be
tenuous indeed. Yet, it is hardly possibly to
understand modern India without reference
to the colonial. Much of the present chapter
has discussed the changes and new trends.
The concluding section addresses a set of areas
where the past continues to cast a shadow
on constraints and opportunities of further
growth in the region.
A somewhat superficial way of suggesting
a continuity would be to show that India in
the 2000s allows a bigger role for the external
sector in shaping material conditions, which
not only ends a period of post-colonial autarky,
but seemingly returns to a nineteenth century
colonial ideal. The comparison is misleading,
however, for the structure of the economy
has changed in between. India now is not
an agricultural economy relying on peasant
exports as it was in the nineteenth century. It
sells software and textiles instead. Although
in both times, millions of South Asians went
abroad for work, the region today does not
economic change in india 315
send out manual labour for plantations, but
semi-skilled service workers, highly skilled
professionals, and quite a few capitalists as
well. The two globalizations have different
meanings for the region. In a large measure,
what had happened during the autarkic phase
had changed the meaning. In the middle
phases, I and II, protection nurtured domestic
business to strength, and saw a convergence
of government and capital-intensive
manufacturing that spawned a regime of
technical training and education with huge
potential spillover. None of this had direct
colonial roots. Many of the successes of Phase
III owed to this restructuring.
If that is accepted, we must also recognize
that India could pursue an autonomous
course in Phase I thanks to the strengths
that the economy had inherited from the
colonial times. Phase I relied crucially on the
cosmopolitan business world of Bombay,
Calcutta, and Madrasa world that owed
more to their history as port cities under
European administration for three centuries
before independence, rather than to traditions
of business and politics indigenous to India.
In these port cities, the first globalization
buttressed by colonialism had led to a
consolidation of business enterprise and
business families. The existence of a strong
industrial capitalist class marked India out
from most other tropical colonies in the 1950s
and the 1960s. University education had made
the literate professionals politically ambitious.
The political leadership of this globally
connected, indigenous, educated elite, rooted
in a pre-colonial administrative culture and
nurtured in the colonial times, enabled smooth
transition in governance, notwithstanding the
bloodbath of 1946 and 1947. The transition
of power contrasted with the experience in
many other former colonies in Africa and Asia,
which were often engulfed in violent struggles
316 economic history of india
for power among the small and usually armed
local factions, worsened by the Cold War and
ending in brutal dictatorships. The railways,
communications, ports, power, universities,
and not least, the bureaucracyall erected in
the colonial timeswere critical resources for
Nehrus India in the pursuit of an independent
path of development. And finally, the colonial
connection was indirectly responsible for
access to the foreign aid, without which Indias
so-called self-reliance would have foundered
soon after it began.
Each subsequent phase built something
new on top of the inherited infrastructure.
But each time, there were large failures
too. The transition from Phase I to Phase
II can be partly understood as a failure of
industrialization to raise rural wages and living
conditions, and consequently a loss of faith in
the way dual economy models were supposed
to work. The critique of economic change in
Phase III had again at its core an argument
that rural livelihoods did not respond on a
significant scale to the vast changes happening
outside this sphere. We need to remember
that economic growth in interwar India had
been a disaster too due to the inertia of rural
livelihoods. Is there an enduring message here?
Poverty remains persistent and large in the
region. It is predominantly a rural problem,
and reaches acute proportions in areas with
poor land yield, costly water, and limited
infrastructural resources. These descriptive
words could apply as well to poverty in
interwar India as they do to India in the early
twenty-first century. The lesson we should
draw from such continuity is not that the state
has failed to remove poverty, but that the state
was constrained from transforming agriculture
everywhere at all times by similar means. The
lesson is that there is an enduring pattern in
the nature of these constraints.
Where the green revolution succeeded,
it succeeded at massive fiscal cost and at the
cost of a diversion of resources from urban
infrastructure to rural infrastructure. Cheap
power for farms starved Indian cities of
power. The other side of public spending on
farm credit and fertilizer subsidies were cities
without roads, water, public transport, and
common space, in short the urban nightmares
that have been the mainstay of the economic
miracle of post-reform India. Most important
of all, in many parts of the region similarly
large spending commitments on rural
resources are unlikely to produce a sustainable
agricultural transformation because of the
vulnerable conditions of soil and water
resources. How this essentially environmental-
historical obstacle is met with will continue
to influence the possibility of mass prosperity
and well-being in the region for a long time to
come.
NOTES
1. On political and social history, historiography, and
the aftermath, see Tai Yong Tan and Gyanesh Kudaisya,
The Aftermath of Partition in South Asia, Abington
and New York: Routledge, 2000; and Ian Talbot and
Gurharpal Singh, The Partition of India, Cambridge:
Cambridge University Press, 2009.
2. Holden Furber, The Unification of India,
19471951, Pacific Affairs, 24(4), 1951, pp. 35271.
3. On the rethinking of development in imperial
administrative circles, see Benjamin Zachariah,
Developing India. An Intellectual and Social History
c.193050, New Delhi: Oxford University Press, 2005.
4. For example, Arvind Panagariya, Growth and
Reforms during 1980s and 1990s, Economic and Political
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5. On the prehistory, see R. Nagaraj, What Has
Happened since 1991? Assessment of Indias Economic
Reforms, EPW, 32(44/45), 1997, pp. 286979; Ajit
Sinha and Shirin Tejani, Trend Break in Indias GDP
Growth Rate: Some Comments, EPW, 39(52), 2004,
pp. 56349; and J. Bradford DeLong, India Since

Independence: An Analytic Growth Narrative, 2001,
available at http://www.economics.pomona.edu/.
6. On the early history of planning, Vivek Chibber,
Locked in Place: State-building and Late Industrialization in
India, Princeton: Princeton University Press, 2003.
7. Bidyut Chakrabarty, Jawaharlal Nehru and
Planning, 1938-41: India at the Crossroads, Modern
Asian Studies (MAS), 26(2), 1992, pp. 27528.
8. M. Balasubramanian in Indian Council of Current
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Appraisal, Calcutta: Oxford Book and Stationery, 1968,
p. 373.
9. For general statements on the theory of aid,
see H.B. Chenery and A. Strout, Foreign Assistance
and Economic Development, American Economic
Review, 56(4), 1966, pp. 679733; I.M.D. Little and
J.M. Clifford, International Aid: A Discussion of the Flow
of Public Resources from Rich to Poor Countries with
particular reference to British Policy, London: George
Allen and Unwin, 1965; V. Joshi, Savings and Foreign
exchange Constraints, in P. Streeten (ed.), Unfashionable
Economics: Essays in Honour of Thomas Balogh, London:
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Michalopoulos, and V.W. Ruttan, Aid and Development,
Baltimore MD: Johns Hopkins University Press, 1989.
10. S.S. Katz, External Assistance and Indian Economic
Growth, Bombay: Asia Publishing House, 1968, p. 47.
11. A.L. Datar, Indias Economic relations with the
USSR and Eastern Europe 1953 to 1969, Cambridge:
Cambridge University Press, 1972, p. 17.
12. See also, for the hypothesis of a trend break
around this time, Ambrish A. Dongre, and Neeraj
Hatekar, Structural Break in Indias Growth: Revisiting
the Debate with a Longer Perspective, EPW, 40(14),
2005, pp. 14325.
13. M.V. Nadkarni, Tenants from the Dominant
Class: A Developing Contradiction in Land Reforms,
EPW, 11(52), 1976, pp. A-137A-146.
14. Sunil Sengupta, West Bengal Land Reforms and
the Agrarian Scene, EPW, 16(256), 1981, pp. A-69A-
75.
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16. Clive Bell and Peter L. Rousseau, Post-
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65(2), 2001, pp. 15375.
P.O. Demetriades and K.B. Luintel, The Direct Costs
economic change in india 317
of Financial Repression: Evidence from India, Review of
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17. Nirmal Chandra, Monopoly Legislation and
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18. H.K. Paranjape, The Vanishing MRTP Act: Will
Only the Grin Remain?, EPW, 17(23), 1982, pp. 95561.
19. For a survey of the turn in Indo-Soviet relations,
see Dietmar Rothermund, India and the Soviet Union,
Annals of the American Academy of Political and Social
Science, 386, 1969, pp. 7888.
20. On the souring of Indo-US relations, see Baldev
Raj Nayar, Treat India Seriously, Foreign Policy, 18, 1975,
pp. 13354; William J. Barnds, India and America at
Odds, International Affairs, 49(3), 1973, pp. 37184.
21. Interestingly, later reassessments of the
macroeconomic history of this time suggest that the
devaluation did not directly contribute to the economic
recovery, so that some of the scepticism was perhaps
justified, Pronab Sen, The 1966 Devaluation in India: A
Reappraisal, EPW, 21(30), 1986, pp. 13229.
22. United States of America, Foreign Relations of the
United States 19641968, Volume XXV
South Asia, available at http://www.state.gov/www/
about_state/history/vol_xxv/zb.html.
23. Rahul Mukherji, Indias Aborted
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37592.
24. Nirmal Chandra, Western Imperialism and India
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A.G. Frank, The Underdevelopment of Development,
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25. See, for example, K.K. Subrahmanian, Role of
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pp. 329.
26. U. Lele and I. Nabi, The Role of Aid and Capital
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27. See essays in Deepak Nayyar (ed.), Industrial
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Oxford University Press, 1994, on the extent of the
industrial decline, and interpretations thereof.
28. Pranab Bardhan, The Political Economy of
Development in India, Oxford: Basil Blackwell, 1984; I.J.
Ahluwalia, Industrial Growth in India: Stagnation since the
Mid-Sixties, New Delhi: Oxford University Press, 1985;
J.N. Bhagwati and T.N. Srinivasan, Foreign Trade Regime
and Economic Development: India, New York: Columbia
University Press, 1975.
29. Hubert van Wrsch, The Bombay Textile Strike
198283, New Delhi: Oxford University Press, 1992.
318 economic history of india
30. S. Guhathakurta, Economic Independence
through Protection? Emerging Contradictions in Indias
Small-scale Policies Sector, World Development, 21(12),
1993, pp. 203954.
31. S.P. Kashyap, Growth of Small-sized Enterprises
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16(6), 1988, pp. 66781.
32. J.C. Sandesara, Small-Scale Industrialisation:
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M.H. Bala Subrahmanya, Reservation Policy for Small-
Scale Industry: Has It Delivered the Goods?, EPW,
30(21), 1995, pp. M51M54.
33. For a selection of writings interpreting the
1980s jobless growth in organized manufacturing,
I.J. Ahluwalia, Productivity and Growth in Indian
Manufacturing, New Delhi: Oxford University
Press, 1991; Ajit Ghose, Economic Restructuring,
Employment and Safety Nets, ILO-ARTEP, Social
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ILO, 1995; R. Nagraj, Employment and Wages in
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pp. 532; K.V. Ramaswamy, The Search for Flexibility
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see B.N. Goldar, Employment Growth in Organized
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Bhattacharjee, Globalising Economy, Localising Labour,
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34. Harish Damodaran, Indias New Capitalists: Caste,
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35. A. Vaidyanathan, Performance and Prospects of
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135568
36. D. Bandyopadhyay, Land Reforms in India: An
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37. T. Besley and R. Burgess, Land Reform, Poverty
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38. Ahluwalia, Industrial Growth in India; and
Ahluwalia, Productivity and Growth.
39. Omkar Goswami, The Indian Textile Industry,
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20(38), 1985, pp. 160314; and Omkar Goswami,
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25(445), 1990, pp 242940, 2497506.
40. Cited text from Atul Kohli, Politics of Economic
Growth in India, 19802005. Part II: The 1990s and
Beyond, EPW, 41(14), 2006, pp. 136170.
41. For example, the share of the states combined
receipts in GDP fell from 20 to 18 per cent, whereas the
share of debt component in the budget increased, even as
the plan sizes continued to expand.
42. The dividend to equity ratio in 1994 worked
out to 3 per cent. The losses sustained by 514 state
companies (out of a total of 840) were staggering.
The rate of return on net fixed assets generated by the
electricity undertakings was 13 per cent in 19934. The
transport corporations combined losses amount to Rs
2.85 billion in 19934.
43. Philippe Aghion, Robin Burgess, Stephen J.
Redding, and Fabrizio Zilibotti, The Unequal Effects of
Liberalization: Evidence from Dismantling the License
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1397412.
44. Jean Drze and Amartya Sen, India: Development
and Participation, New York: Oxford University Press,
2002.
45. Shenggen Fan, Peter Hazell, and Sukhadeo
Thorat, Government Spending, Growth and Poverty:
An Analysis of Interlinkages in Rural India, Washington,
DC: International Food Policy Research Institute, 1998.
46. On the link between per capita agricultural
output and rural poverty see Montek S. Ahluwalia,
Rural Poverty, Agricultural Production, and Prices:
A Reexamination, in J. Mellor and G. Desai (eds),
Agricultural Change and Rural Poverty, Baltimore: Johns
Hopkins University Press, 1985. For a post-reform
assessment of the trends, see Angus Deaton and
Jean Dreze, Poverty and Inequality in India: A Re-
Examination, EPW, 37(36), 2002, pp. 372948.
47. John Mellor, The New Economics of Growth:
A Strategy for India and the Developing World, Ithaca:
Cornell University Press, 1976. An empirical
investigation into the relationship found that nonfarm
employment compensated for rural unemployment, A.
Vaidyanathan, Labour Use in Rural India: A Study of
Spatial and Temporal Variations, EPW, 21(52), 1986,
A-130A-146.
48. K.P. Kalirajan and U. Sankar, Agriculture in
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49. Andrew D. Foster and Mark R. Rosenzweig,
Agricultural Productivity Growth, Rural Economic

Diversity, and Economic Reforms: India, 19702000,
Economic Development and Cultural Change, 52(3), 2004,
pp. 50942.
50. Fan, Hazell, Thorat, Government Spending.
51. Tushaar Shah, M. Hassan, M.Z. Khattak, P.S.
Banerjee, O.P. Singh, and S. Rehman, Is Irrigation Water
Free? A Reality Check in the Indo-Gangetic Basin, World
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52. Ashok Gulati and S. Narayanan, The Subsidy
Syndrome in Indian Agriculture, New Delhi: Oxford
University Press, 2003.
53. On the costs of the public distribution system,
see R. Radhakrishna and K. Subbarao, Indias Public
Distribution System, Washington DC: World Bank
Discussion Paper 380, , Washington, DC: World Bank,
1997.
54. Shenngen Fan, Peter Hazell, T. Haque, Targeting
Public Investments by Agro-ecological Zone to achieve
Growth and Poverty Alleviation Goals in Rural India,
Food Policy, 25, 2000, pp. 41128.
55. Montek S. Ahluwalia, Economic Reforms in
India since 1991: Has Gradualism Worked?, The Journal
of Economic Perspectives, 16(3), 2002, pp. 6788.
56. Foster and Rosenzweig, Agricultural
Productivity Growth.
57. Fan, Hazell, Haque, Targeting Public
Investments.
58. R. Palmer-Jones, and K. Sen, What Has Luck
Got To Do With It? A Regional Analysis of Poverty
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59. John L. Pender and John M. Kerr, Determinants
of Farmers Indigenous Soil and Water Conservation
Investments in Semi-arid India, Agricultural Economics,
19, 1998, pp. 11325.
60. John Kerr, Watershed Development,
Environmental Services, and Poverty Alleviation in India,
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61. Martin Ravallion, Prices, Wages and Poverty in
Rural India: What Lessons do the Time Series Data hold
for Policy?, Food Policy, 25(4), 2000, pp. 35164.
62. Ashok Gulati, Indian Agriculture in a
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63. On the expected impact of rice trade
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and Sudha Narayanan, Rice Trade Liberalisation and
Poverty, EPW, 38(1), 2003, pp. 4551.
economic change in india 319
64. K. Kalirajan and S. Bhide, The Post-reform
Performance of the Manufacturing Sector in India, Asian
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65. Kwok Tong Soo, From Licence Raj to Market
Forces: The Determinants of Industrial Structure in India
after Reform, Economica, 75, 2008, pp. 22243.
66. Baldev Raj Nayar, Business and Indias Economic
Policy Reforms, EPW, 1998, pp. 245368.
67. Sukhpal Singh, Contracting Out Solutions:
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Punjab, World Development, 30(9), 2002, pp. 162138.
68. Sharad Chari, The Agrarian Origins of the
Knitwear Industrial Cluster in Tiruppur, India, World
Development, 28(3), 2000, pp. 57999; Carol Upadhya,
A New Transnational Capitalist Class? Capital Flows,
Business Networks and Entrepreneurs in the Indian
Software Industry, EPW, 39(48), 2004, pp. 514151.
69. Maureen Liebl and Tirthankar Roy, Handmade
in India: Status Report on Indias Artisans, EPW,
38(512), 20034, pp. 536676.
70. M.H. Bala Subrahmanya, Small Industry and
Globalisation: Implications, Performance and Prospects,
EPW, 2004, pp. 182634.
71. See, for example, several essays in Konosuke
Odaka and Yukihiko Kiyokawa (eds), Small and Medium
Scale Industry in India and the Model of Japan, New Delhi:
Allied Publishers, 2008.
72. S.S. Bhalla and T. Das, Pre- and Post-reform
India: A Revised Look at Employment, Wages, and
Inequality, in Suman Bery, Barry Bosworth, and Arvind
Panagariya (eds), India Policy Forum 2005-6, New Delhi:
Sage Publications, 2006, pp. 183254.
73. R. Chamarbagwala, Economic Liberalization
and Wage Inequality in India, World Development,
34(12), 2006, pp. 19972015.
74. A useful set of essays on changes in the labour
regime can be found in Dipak Mazumdar and Sandip
Sarkar (eds), Globalization, Labor Markets and Inequality
in India, London: Routledge, 2008.
75. Jayati Ghosh, Globalization, Export-Oriented
Employment for Women and Social Policy: A Case Study
of India, Social Scientist, 30(11/12), 2002, pp. 1760.
76. I borrow the phrase from a biography of a
sixteenth century Portuguese governor of Goa, which
describes contemporary Europe as a society that looked
forward and looked back at the same time.
Further Readings
CHAPTER 2
Indian Ocean Trade
The literature is large and growing. A list
of representative general treatments and
collections would include K.N. Chaudhuri,
Trade and Civilization in the Indian Ocean:
An Economic History from the Rise of Islam
to 1750, Cambridge: Cambridge University
Press, 1985; Ashin Das Gupta, The World of
the Indian Ocean Merchant, New Delhi: Oxford
University Press, 2003; Kenneth McPherson,
The Indian Ocean: A History of People and the
Sea, New York: Oxford University Press, 1998;
M.N. Pearson, The Indian Ocean, London:
Routledge, 2003; Om Prakash, European
Commercial Enterprise in Precolonial India: The
New Cambridge History of India, Cambridge:
Cambridge University Press, 1998; Giorgio
Riello and Tirthankar Roy (eds), How India
Clothed the World, Leiden: Brill, 2010.
Property Rights in Land, Land Tax,
Tenancy, and Land Market
The best descriptive work on British reforms
is the classic treatise by B.H. Baden-Powell,
The Land-Systems of British India, Volumes
IIII, Oxford: Clarendon Press, 1892.
Surveys are available in the four articles on
agrarian relations in Dharma Kumar (ed.),
The Cambridge Economic History of India,
Volume 2 (CEHI 2), Cambridge: Cambridge
University Press, 1983. See Eric Stokes,
Northern and Central India, in CEHI 2, pp.
3685; B. Chaudhuri, Eastern India, in CEHI
2, pp. 86176; H. Fukazawa, Western India,
in CEHI 2, pp. 177206; and Dharma Kumar,
South India, in CEHI 2, pp. 20741. See also
Neeladri Bhattacharya, Colonial State and
Agrarian Policy, pp. 11323; and Burton Stein,
Introduction, pp. 132, both in B. Stein (ed.),
The Making of Agrarian Policy in British India
17701900, New Delhi: Oxford University
Press, 1992. On the intellectual roots of
agrarian policy, see R.D. Choksey, Economic
History of the BombayDeccan and Karnatak

(18181868), Poona: Gokhale Institute of
Politics and Economics, 1945; A.T. Embree,
Landholding in India and British Institutions,
in R.E. Frykenberg (ed.), Land Control and
Social Structure in Indian History, Madison:
University of Wisconsin Press, 1969, pp. 33
52; Frykenberg, Guntur District: 17881848, A
History of Local Influence and Central Authority
in South India, Oxford: Clarendon Press, 1965;
R. Guha, A Rule of Property for Bengal: An
Essay on the Idea of Permanent Settlement, Paris:
Mouton, 1963; Sumit Guha, The Agrarian
Economy of the BombayDeccan, 18181941,
New Delhi: Oxford University Press, 1985,
chapter II; Dharma Kumar, Land and Caste in
South India, Cambridge: Cambridge University
Press, 1965; David Ludden, Peasant History in
South India, Princeton: Princeton University
Press, 1985, pp. 10115; N. Mukherjee and
R.E. Frykenberg, The Ryotwari System and
Social Organization in the Madras Presidency,
in R.E. Fykenberg (ed.), Land Control and
Social Structure in Indian History, Madison:
University of Wisconsin Press, 1969; Eric
Stokes, The English Utilitarians and India,
New Delhi: Oxford University Press, 1959,
chapter II.
Business History
S.K. Muranjan, Modern Banking in India,
Bombay: Kamala Publishing House, 1952;
R.S. Rungta, The Rise of Business Corporations
in India, 18511900, Cambridge: Cambridge
University Press, 1970 is useful. The five
articles on regional economy in CEHI 2, by
Tom G. Kessinger, North India, pp. 24270;
S. Bhattacharya and B. Chaudhuri, Eastern
India, pp. 270332; V.D. Divekar, Western
India, pp. 33251; and Dharma Kumar, South
India, pp. 35275, contain some discussion
on banking and finance. See also Rajat K.
Ray, in Rajat K. Ray (ed.), Entrepreneurship
further readings 321
and Industry in India 18001947, New Delhi:
Oxford University Press, 1992, pp. 169, see
especially pp. 1830; N.K. Sinha, Indian
Business Enterprise: Its Failure in Calcutta
18001848, in Ray (ed.), Entrepreneurship
and Industry; Blair B. Kling, Partners in Empire,
Calcutta: Firma KLM, 1981.
History of Artisan Industries
A.K. Bagchi, De-industrialisation in India in
the Nineteenth Century: Some Theoretical
Implications, Journal of Development Studies,
12(2), 1976, pp. 13564; Sumit Guha,
The Handloom Industry of Central India:
18251950, Indian Economic and Social
History Review (IESHR), 26(3), 1989, pp.
297318, both reprinted in T. Roy (ed.), Cloth
and Commerce, New Delhi: Sage Publications,
1996; P. Harnetty, De-industrialization
Revisited: The Handloom Weavers of the
Central Provinces of India, c. 18001947,
Modern Asia Studies (MAS), 25(3), 1991,
pp. 455510; Morris D. Morris, Towards
a Reinterpretation of Nineteenth Century
Indian Economic History, Journal of Economic
History (JEH), 23(4), 1963, pp. 60618;
Konrad Specker, Madras Handlooms in the
Nineteenth Century, IESHR, 26(2), 1989, pp.
13166.
CHAPTER 3
National Income
The two essential references on historical
income and production statistics are George
Blyn, Agricultural Trends in India, 18911947:
Output, Availability and Productivity,
Philadelphia: University of Pennsylvania
Press, 1966; and S. Sivasubramonian, The
National Income of India in the Twentieth
Century, New Delhi: Oxford University
322 further readings
Press, 2000. Published as a book 35 years
after it first appeared as a doctoral thesis,
National Income of India contains revisions
of the original figures in response to major
comments, a chapter on post-colonial income
trends, review of contemporary and older
scholarship, and a guided tour through Indian
published database. See also Box 3.2 for
further suggestions on reading. A good reading
on the history of the construction of income
estimates is Alan Heston, National Income,
in CEHI 2, pp. 376462. For an older exercise
and a contemporary debate, see F.J. Atkinson,
A Statistical Review of Income and Wealth
in British India, Journal of the Royal Statistical
Society, 65, 1902, pp. 20972.
Wages
For rural and mill wages, see K. Mukerji,
Trends in Real Wages in Cotton Textile Mills
in Bombay City and Island, From 1900 to
1951, Artha Vijnana, 1(1), 1959, pp. 8295;
Mukerji, Trends in Real Wages in Jute Textile
Industry from 1900 to 1951, Artha Vijnana,
2(1), 1960, pp. 5769; Trends in Real Wages
in Cotton Textile Industry in Ahmedabad
from 1900 to 1951, Artha Vijnana, 3(2), 1961,
pp. 12434; Tirthankar Roy, Globalization,
Factor Prices, and Poverty in Colonial India,
Australian Economic History Review, 47(1),
2007, pp. 7394. Urban artisan wages are
compiled and reported in Sivasubramonian,
National Income of India.
Trade and Balance of Payments
The standard readings would include A.K.
Banerji, Indias Balance of Payments, Bombay:
Asia Publishing House, 1962; Banerji, Aspects
of Indo-British Economic Relations, 18581898,
Bombay: Oxford University Press, 1982; K.N.
Chaudhuri, Foreign Trade and Balance of
Payments, in CEHI 2, pp. 80475; Raymond
W. Goldsmith, The Financial Development of
India, 18601977, New Haven and London:
Yale University Press, 1983.
Prices
M. McAlpin, Price Movements and Economic
Fluctuations, in CEHI 2, pp. 878904;
Tirthankar Roy, Price Movements in Early
Twentieth Century India, English Historical
Review (EHR), 48(1), 1995, pp. 11833.
The Great Depression
C.J. Baker, Debt and the Depression in
Madras, 19291936, in C. Dewey and A. G.
Hopkins (eds), The Imperial Impact: Studies
in the Economic History of Africa and India,
London: Athlone Press, 1978; Ian Brown
(ed.), The Economies of Africa and Asia in
the Interwar Depression, London: Routledge,
1989; Neil Charlesworth, The Peasant and
the Depression: The Case of the Bombay
Presidency, India, in Brown (ed.) The Economies
of Africa and Asia; Dietmar Rothermund,
India in the Great Depression, 192939, Delhi:
Manohar, 1992; and Rothermund, The Global
Impact of the Great Depression, 19291939,
London: Routledge, 1996; Colin Simmons,
The Great Depression and Indian industry:
Changing Interpretations and Changing
Perceptions, MAS, 21(3), 1987, pp. 585623.
See also on monetary policy particularly,
G. Balachandran, John Bullions Empire:
Britains Gold Problem and India between the
Wars, Richmond: Curzon Press, 1996; and
B.R. Tomlinson, The Political Economy of
the Raj 191447, London and Basingstoke:
Macmillan, 1979.

CHAPTER 4
Commercialization and Associated
Issues
For example, S. Bhattacharya, Sumit
Guha, Raman Mahadevan, Sakti Padhi, D.
Rajasekhar, and G.N. Rao (eds), The South
Indian Economy: Agrarian Change, Industrial
Structure, and State Policy c.19141947, New
Delhi: Oxford University Press, 1991; Sugata
Bose (ed.), Credit, Markets and the Agrarian
Economy, New Delhi: Oxford University
Press, 1994; David Ludden (ed.), Agricltural
Production in Indian History, New Delhi:
Oxford University Press, 1994; K.N. Raj, N.
Bhattacharya, S. Guha, and S. Padhi (eds),
Essays on the Commercialization of Indian
Agriculture, New Delhi: Oxford University
Press, 1985.
Agrarian Change in Specific Regions
The scholarship on agrarian change in
specific regions is partially represented
in the collections under the heading
Commercialization and Associated Issues.
Additional readings may include the following.
Punjab
Indu Agnihotri, Ecology, Land Use and
Colonisation: The Canal Colonies of Punjab,
IESHR, 33(1), 1996, pp. 5968; Imran Ali,
Malign Growth? Agricultural Colonization
and the Roots of Backwardness in the Punjab,
Past and Present, 114(1), 1987, pp. 11032;
Himadri Banerjee, Agrarian Society of the
Punjab 18491901, Delhi: Manohar, 1982; Ian
Talbot, Punjab and the Raj, New Delhi: Oxford
University Press, 1988.
further readings 323
Western UP
On canals and the regional economy; Ian
Derbyshire, Economic Change and the
Railways in North India, 18601914,
MAS, 21(3), 1987, pp. 52145; Ian Stone,
Canal Irrigation in British India, Cambridge:
Cambridge University Press, 1984, chapter
8, pp. 278346; Elizabeth Whitcombe,
Agrarian Conditions in Northern India, Volume
1, Berkeley and Los Angeles: University of
California Press, 1972, Introduction and
chapter II.
Deccan Plateau
Donald W. Attwood, Raising Cane: The
Political Economy of Sugar in Western India,
New Delhi: Oxford University Press, 1993,
chapters 27; Neil Charlesworth, Peasants
and Imperial Rule: Agriculture and Agrarian
Society in the Bombay Presidency 18501935,
Cambridge: Cambridge University Press,
2002; Sumit Guha, The Agrarian Economy
of the BombayDeccan 18181941, New
Delhi: Oxford University Press, 1985; M.B.
McAlpin, Subject to Famine: Food Crises and
Economic Change in Western India, 18601920,
Princeton: Princeton University Press, 1983,
chapter 7.
Coastal Gujarat
C.N. Bates, The Nature of Social Change in
Rural Gujarat: The Kheda District 1818
1918, MAS, 15(4), 1981, pp. 771821.
Eastern India
Sugata Bose, Peasant Labour and Colonial
Capital. Rural Bengal since 1770, Cambridge:
Cambridge University Press, 1993; B.B.
324 further readings
Chaudhuri, Growth of Commercial
Agriculture in Bengal18591885, in
Ludden (ed.), Agricultural Production and
Indian History, pp. 14581. On Assam, Bihar,
and Orissa, see Amalendu Guha, A Big Push
without a Take-off: A Case Study of Assam
18711901, IESHR, 5(2), 1968, pp. 199221,
and Guha, Assamese Agrarian Societies in the
Late Nineteenth Century: Roots, Structures
and Trends, IESHR, 17(1), 1980, pp. 3594;
P.P. Mohapatra, Aspects of Agrarian Economy
of Chotanagpur 18801950, PhD dissertation,
Jawaharlal Nehru University, New Delhi, 1990;
J. Pouchepadass, Land, Power and Market. A
Bihar District under Colonial Rule, 18601947,
New Delhi: Sage Publications, 2000. See also
readings on tea plantations in Chapter 7.
Coastal Andhra
G.N. Rao, Canal Irrigation and Agrarian
Change in Colonial Andhra: A Study of
Godavari District, c. 18501890, IESHR,
25(2560), 1988; and G.N. Rao, Transition
from Subsistence to Commercial Agriculture:
A Study of Krishna District of Andhra, 1850
1900, EPW, 20(256), 1985, pp. A60A69;
A. Satyanarayana, Expansion of Commodity
Production and Agrarian Market, in Ludden
(ed.), Agricultural Production and Indian History,
pp. 182238.
Tamil Nadu
C.J. Baker, An Indian Rural Economy,
18801955: The Tamilnad Countryside, New
Delhi: Oxford University Press, 1984, chapter
3; David Ludden, Peasant History in South
India, Princeton: Princeton University Press,
1985, pp. 13063, chapter 5; M.S.S. Pandian,
The Political Economy of Agrarian Change.
Nanchilnadu 18801939, New Delhi: Sage
Publications, 1990; Haruka Yanagisawa, A
Century of Change: Caste and Irrigated Lands
in Tamil Nadu 1860s1970s, Delhi: Manohar,
1996, Introduction.
Central India
D.E.U. Baker, Colonialism in an Indian
Hinterland: The Central provinces 18201920,
New Delhi: Oxford University Press, 1993,
pp. 107235; Peter Harnetty, Crop Trends in
the Central Provinces of India, 18611921,
MAS, 11(3), 1977, pp. 34177; Laxman Satya,
Cotton and Famine in Berar, 18501900, Delhi:
Manohar, 1997; N. Benjamin, The Trade of
the Central Provinces of India (18611880),
IESHR, 15(4), 1978, pp. 50515.
Sind
R.D. Choksey and K.S. Sastry, The Story of
Sind, Pune: Dastane, 1983; David Gilmartin,
Scientific Empire and Imperial Science:
Colonialism and Irrigation Technology in the
Indus Basin, Journal of Asian Studies (JAS),
53(4), 1994, pp. 112749, contains a useful
description of irrigation development.
Land Markets, Credit Market, Rural
Moneylending
Chaudhuri, Agrarian Relations: Eastern India,
in CEHI 2, pp. 93109; Sumit Guha, The
Land Market in Upland Maharashtra 1820
1960, IESHR, 24(23), 1987, pp. 11744,
291322; Jacques Pouchepadass, Land, Power
and Market: The Rise of the Land Market in
Gangetic India, in Peter Robb (ed.), Rural
India: Land, Power and Society under British
Rule, New Delhi: Oxford University Press,
1992, pp. 78108. Nariaki Nakazato, Regional
Pattern of Land Transfer in Late Colonial

Bengal, in Peter Robb, Kaoru Sugihara, and
Haruka Yanagisawa (eds), Local Agrarian
Societies in Colonial India: Japanese Perspectives,
Richmond: Curzon Press, 1996, pp. 25079.
On land rents particularly, see Sumit Guha,
Agricultural Rents in India c. 19001960,
in M. Hasan and N. Gupta (eds), Indias
Colonial Encounter: Essays in Memory of Eric
Stokes, Delhi: Manohar, 1993; M.A. Reddy,
Lands and Tenants in South India: A Study
of Nellore District, 18501990, New Delhi:
Oxford University Press, 1996. On labour, the
collection Gyan Prakash (ed.), The World of the
Rural Labourer in Colonial India, New Delhi:
Oxford University Press, 1994, is useful.
CHAPTER 6
Handloom and Powerloom Industries
Sumit Guha, The Handloom Industry
of Central India: 18251950, IESHR,
26(3), 1989, pp. 297318; Peter Harnetty,
Deindustrialization Revisited: The Handloom
Weavers of the Central Provinces of India,
MAS, 25(3), 1991, pp. 455510; Douglas
Haynes, The Dynamics of Continuity in
Indian Domestic Industry: Jari Manufacturing
in Surat, 190047, IESHR, 23 (2), 1986, pp.
12749; HaynesThe Logic of the Artisan
Firm in a Capitalist Economy: Handloom
Weavers and Technological Change in
Western India, 18801947, in Burton Stein
and Sanjay Subrahmanyam (eds), Institutions
and Economic Change in South Asia, New
Delhi: Oxford University Press, 1996, pp.
173205; and Artisan Cloth-producers and
the Emergence of Powerloom Manufacture
in Western India 19201950, Past and
Present, 172, 2001, pp. 17098; Douglas
Haynes and Tirthankar Roy, Conceiving
Mobility: Migration of Handloom Weavers
in Precolonial and Colonial India, IESHR,
further readings 325
36(1), 1999, pp. 3567; Tirthankar Roy,
Artisans and Industrialization: Indian Weaving
in the Twentieth Century, New Delhi: Oxford
University Press, 1993; Roy, Traditional
Industry in the Economy of Colonial India,
Cambridge: Cambridge University Press,
1999; Roy, Acceptance of Innovations in
Early Twentieth Century Indian Weaving,
Economic History Review (EHR), 55(3), 2002,
pp. 50732; Roy Out of Tradition: Master
Artisans and Economic Change in Colonial
India, JAS, 66(4), 2007, pp. 96391; and Roy,
Development or Distortion? Powerlooms
in India, 19501997, EPW, 33(16), 1998,
pp. 897911; Konrad Specker, Madras
Handlooms in the Nineteenth Century,
IESHR, 2(2), 1989, pp. 13166; Haruka
Yanagisawa, The Handloom Industry and its
Market Structure: The Case of the Madras
Presidency in the First Half of the Twentieth
Century, IESHR, 30(1), 1993, pp. 127.
Iron
S. Bhattacharya, Iron Smelters and the
Indigenous Iron and Steel Industry in India:
From Stagnation to Atrophy, Journal of Indian
Anthropological Society, 5(1/2), 1970, pp.
13351; A.K. Biswas, Iron and Steel in Pre-
modern IndiaA Critical Review, Indian
Journal of the History of Science, 19(4), 1994,
pp. 579610; R.S. Rungta, The Rise of Business
Corporations in India 18511900, Cambridge:
Cambridge University Press, 1970, pp. 2768;
Prasannan Parthasarathi, Iron-smelting in the
Indian subcontinent c. 1800, Paper presented
at the S.R. Epstein memorial conference,
London: London School of Economics and
Political Science, 2008; Tirthankar Roy, Did
Globalization Aid Industrial Development
in Colonial India? A Study of Knowledge
Transfer in the Iron Industry, IESHR, 46(4),
2009, pp. 579613; and Roy, Knowledge
326 further readings
and Divergence from the Perspective of Early
Modern India, Journal of Global History, 3(3),
2008, pp. 36187.
Other Artisan Industries
Roy, Traditional Industry in the Economy of
Colonial India, chapters 46.
Labour and Capital
General readings on capital and labour include
Haynes and Roy, Conceiving Mobility;
Tirthankar Roy, Capitalism and Community:
A Study of the Madurai Sourashtras, IESHR,
34(4), 1997, pp. 43763; Haynes, Weavers
Capital; Roy, Traditional Industry, chapter 2.
There is little scholarly research available on
women workers in the handicraft industries,
even though women conduct a major part
of the work in several industries. I make a
limited attempt to meet this gap in Rethinking
Economic Change in India: Labour and
Livelihood, London: Routledge, 2005, chapter
8.
Modern Small-scale Industry
C.J. Baker, An Indian Rural Economy, 1880
1955: The Tamilnad Countryside, New Delhi:
Oxford University Press, 1984; K.P. Kannan,
Of Rural Proletarian Struggles: Mobilization and
Organization of Rural Workers in South-west
India, New Delhi: Oxford University Press,
1988, pp. 5569; Haruka Yanagisawa, The
Growth of Rural Industries in Tamilnadu and
their Domestic Markets, 19001950, in T.
Mizushima and H. Yanagisawa (eds), History
and Society in South India, Tokyo: Tokyo
University of Foreign Studies, 1996. See also
references on the powerlooms.
CHAPTER 7
Factory-based Industrialization
A.K. Bagchi, Private Investment in India, 1900
1939, Cambridge: Cambridge University
Press, 1970; Morris D. Morris, The Growth
of Large-scale Industry to 1947, in CEHI 2;
Rajat K. Ray, Industrialization in India. Growth
and Conflict in the Private Corporate Sector,
19141947, New Delhi: Oxford University
Press, 1982. On the cotton textile industry,
and important discussion on characteristics
of Indian industrialization, see Rajnarayan
Chandavarkar, The Origins of Industrial
Capitalism in India, Cambridge: Cambridge
University Press, 1994, chapters 1 and 6.
Industrial Finance and Institutional
Issues
R.S. Rungta, Rise of Business Corporations in
India, 18511900, Cambridge: Cambridge
University Press, 1970, chapter 11, pp. 20318.
P.S. Lokanathan, Industrial Organization in
India, London: Allen and Unwin, 1970. Read
also the Introduction of A.K. Bagchi, The
Evolution of the State Bank of India, Volume 2:
The Era of the Presidency Banks, 18761920,
London and New Delhi: Sage Publications,
1997. On informal industrial organization,
see Tirthankar Roy, Company of Kinsmen:
Enterprise and Community in South Asian
History 17001940, New Delhi: Oxford
University Press, 2010. On the managing
agency system, additional readings should
include Maria Misra, Business, Race and
Politics in British India, c.18501960, Oxford:
Clarendon Press, 1999, pp. 1765; B.B. Kling,
The Origin of the Managing Agency in India,
JAS, 26(1), 1966, pp. 3747.

Entrepreneurship
D.R. Gadgil, Origins of the Modern Indian
Business Class: An Interim Report, New York:
Institute of Pacific Relations, 1959; Ashok
Desai, The Origins of Parsi Enterprise, pp.
99108, Thomas A. Timberg, Three Types
of Marwari Firms, pp. 12756, A.K. Bagchi,
European and Indian Entrepreneurship in
India, 190030, pp. 15796, and Omkar
Goswami, Sahibs, Babus, and Banias: Changes
in Industrial Control in Eastern India, 1918
50, all in Rajat K. Ray (ed.), Entrepreneurship
and Industry in India. 18001947, New Delhi:
Oxford University Press, 1994, pp. 22859;
Amalendu Guha, Parsi Sheths, Raman
Mahadevan, Entrepreneurship and Business
Communities in Colonial Madras, 190029,
J.S. Grewal, Business Communities of Punjab,
and Dwijendra Tripathi, Class Character
of the Gujarati Business Community,
all in Dwijendra Tripathi (ed.), Business
Communities of India, Delhi: Manohar, 1984;
Dwijendra Tripathi, The Oxford History of
Indian Business, New Delhi: Oxford University
Press, 2004; A.F. Brimmer, The Setting of
Entrepreneurship in India, Quarterly Journal
of Economics, 69(4), 1955, pp. 55376; Helen
Lamb, The Indian Business Communities and
the Evolution of an Industrialist Class, Pacific
Affairs, 28(2), 1955, pp. 10116.
CHAPTER 8
Plantations
The scholarship on plantations has mainly
studied labour relations. General works
covering a broad range of themes are Ranajit
Das Gupta, Economy, Society and Politics in
Bengal: Jalpaiguri 18691947, New Delhi:
Oxford University Press, 1992, chapter 4;
Tharian George and P.K. Michael Tharakan,
further readings 327
Penetration of Capital into a Traditional
Economy: The Case of Tea Plantations in
Kerala, Studies in History, 2(2), 1986, pp.
199229; Percival Griffiths, The History of
the Indian Tea Industry, London: Weidenfield
and Nicholson, 1967; A. Guha, A Big Push
without a Take-off: A Case Study of Assam
18711901, IESHR, 5(3), 1968, pp. 199221;
S.G. Speer, UPASI 18931953, Coonoor,
(n.d.);; Virginius Xaxa, Colonial Capitalism
and Underdevelopment in North Bengal,
Economic and Political Weekly (EPW), 20(39),
1985, pp. 165965. On labour specifically, see
R.P. Behal, Forms of Labour Protest in Assam
Valley Tea Plantations, 19001950, EPW,
20(4), 1985, PE19PE26; Ranajit Das Gupta,
From Peasants and Tribesmen to Plantation
WorkersColonial Capitalism, Reproduction
of Labour Power and Proletarianisation in
North East India: 1850s1947, EPW, 21(4),
1986, PE2PE10; Arjaan de Haan, Migration
in Eastern India: A Segmented Labour
Market, IESHR, 32(1), 1995, pp. 5193;
Ravi Raman, Global Capital and Peripheral
Labour: The History and Political Economy of
Plantation Workers in India, London and New
York: Routledge, 2010; Ralph Shlomowitz
and Lance Brennan, Mortality and Migrant
Labour Enroute to Assam, 18631924,
IESHR, 27(3), 1990, pp. 31330. On tea
labour, in addition to the readings cited above,
the following is very useful, India, Proceedings
of the Assam Labour Enquiry Committee in
the Recruiting and Labour Districts, Calcutta:
Government Press, 1906.
Mines and Mining Labour
C.P. Simmons, Indigenous Enterprise in the
Indian Coal Mining Industry, c. 18351939,
IESHR, 13(2), 1976, pp. 189217; C.P.
Simmons, Recruiting and Organizing an
Industrial Labour Force in Colonial India:
328 further readings
The Case of the Coal Mining Industry,
c. 18801939, IESHR, 13(4), 1976, pp.
45585. Henner Papandieck, British
Managing Agnecies in the Indian Coalfield,
in D. Rothermund and D.C. Wadhwa (eds),
Zaminders, Mines, and Peasants. Studies in the
History of an Indian Coalfield, Delhi: Manohar,
1978. D. Rothermund (ed.), Urban Growth
and Rural Stagnation. Studies in the Economy
of an Indian Coalfield and its Rural Hinterland,
Delhi: Manohar, 1980; Dilip Simeon, The
Politics of Labour Under Late Colonialism:
Workers, Unions and the State in Chota Nagpur
192839, Delhi: Manohar, 1995, pp. 168,
2330, 14958. A.B. Ghosh, Coal Industry in
India, Delhi: S. Chand, 1977.
Banking History
A.K. Bagchi, The Evolution of the State Bank of
India, Volume 2, New Delhi: Sage Publications,
1997, pp. 6672; A.G. Chandavarkar, Money
and Credit, 18581947, in CEHI 2, pp.
762803; G.R. Desai, Life Insurance Business in
India, Delhi: Macmillan, 1973; S.K. Muranjan,
Modern Banking in India, Bombay: Kamala,
1952; R.S. Rungta, The Rise of Business
Corporations in India, 18511900, Cambridge:
Cambridge University Press, 1970, pp.
20319.
CHAPTER 9
Irrigation
Elizabeth Whitcombe, Irrigation, in CEHI
2, pp. 677736; and Stone, Canal Irrigation
in British India, Cambridge: Cambridge
University Press, 1984, chapter 1, pp. 112,
chapter 2 on Construction of Canals, pp.
1367, and chapter 8 on Effects on Regional
Economy, pp. 278347. On the canal colonies
of Punjab, see Imran Ali, Malign Growth?
Agricultural Colonization and Roots of
Backwardness in the Punjab, Past and Present,
114(1), 1987, pp. 11032.
Railways
Ian Derbyshire, The Building of Indias
Railways: The Application of Western
Technology in the Colonial periphery
18501920, in Roy MacLeod and Deepak
Kumar (eds), Technology and the Raj: Western
Technology and Technical Transfers to India,
17001947, New Delhi: Sage Publications,
1995; Peter Harnetty, Imperialism and Free
Trade: Lancashire and India in the Mid-nineteenth
Century, Vancouver: University of British
Columbia Press, 1972, chapter 4; I.J. Kerr,
Building the Railways of the Raj 18501900,
New Delhi: Oxford University Press, 1995;
Daniel Thorner, Investment in Empire: British
Railway and Steam Shipping Enterprise in
India 18251849, Philadelphia: University of
Pennsylvania Press, 1950. On the economic
effects of the railways, John Hurd, Railways,
in CEHI 2, pp. 73761. Several works cited
in Chapter 3 also deal with this theme. For a
superbly readable and illustrated descriptive
history of the railways, read chapters IV of
J.N. Sahni, Indian Railways. One Hundred Years
18531953, New Delhi: Railway Board, 1953.
Telegraph
Saroj Ghose, The Introduction and
Development of the Electric Telegraph in India,
PhD dissertation, Jadavpur University, Calcutta,
1974; and Saroj Ghosh, Commercial Needs and
Military Necessities: The Telegraph in India
in Roy MacLeod and Deepak Kumar (eds),
Technology and the Raj: Western Technology and
Technical Transfers to India, 17001947, New
Delhi: Sage Publications, 1995.

Law, Education, Healthcare
Syed Nurullah and J.P. Naik, A History of
Education in India, Bombay: Macmillan, 1951;
Tirthankar Roy, The Company of Kinsmen:
Enterprise and Community in South Asian
History 17001940, New Delhi: Oxford
University Press, 2010, chapter 3; Samuel
Schmitthener, A Sketch of the Development
of the Legal Profession in India, Law and
Society Review, 3(2/3), 1968, pp. 33782.
On scientific and technical education, see
Deepak Kumar, Science and the Raj, New Delhi:
Oxford University Press, 1995, chapter 4. On
healthcareDavid Arnold, Colonizing the
Body. State Medicince and Epidemic Disease in
Nineteenth-Century India, New Delhi: Oxford
University Press, 1993, chapter 6; Arun
Kumar, Medicine and the Raj, British Medical
Policy in India, 18351911, New Delhi: Sage
Publications, 1998.
CHAPTER 10
The institutional structure of decisionmaking
has been described in S. Ambirajan, Classical
Political Economy and British Policy in India,
Cambridge: Cambridge University Press,
1978, chapter 1. See also the Table 3, p. 269,
for an overview of government intervention.
On trade policy and related politics, Basudeb
Chatterji, Trade, Tariffs and Empire, New
Delhi: Oxford University Press, 1992. On
the impact of tariffs on Indian industry, see
discussion in Chapter 6 and the readings cited
therein.
Fiscal System and Policy
Dharma Kumar, The Fiscal System, in CEHI
2, pp. 90544; M.J.K. Thavaraj, Capital
Formation in the Public Sector in India: A
Historical Study, 18981938, in V.K.R.V. Rao
further readings 329
(ed.), Papers on National Income and Allied
Topics, Delhi: Allied Publishers, 1962. As for
the princely states, economic policies of only
the three larger states have been researched
somewhat adequately. See Bjrn Hettne,
The Political Economy of Indirect Rule. Mysore
18811947, London and Malm: Curzon
Press, 1978, Part III; T.M. Thomas Isaac and
P.K. Michael Tharakan, An Enquiry into the
Historical Roots of Industrial Backwardness
of KeralaA Study of the Travancore Region,
Centre for Development Studies, Trivandrum,
Working Paper No. 215; Raman Mahadevan,
Industrial Entrepreneurship in Princely
Travancore: 193047; and C.V. Subbarao,
Role of the State in Industrialization: The Case
of Hyderabad, both in S. Bhattacharya, Guha,
Mahadevan, Padhi, Rajasekhar, and. Rao (eds),
The South Indian Economy, New Delhi: Oxford
University Press, 1991.
Monetary System
G. Balachandran, John Bullions Empire.
Britains Gold Problem and India between the
Wars, Richmond: Curzon Press, 1996, on the
interwar period; M. De Cecco, Money and
Empire, Oxford: Blackwell, 1974, on pre-war
India; B.R. Tomlinson, The Political Economy
of the Raj, 191447, London and Basingstoke:
Macmillan, 1979. A.K. Bagchi, The Presidency
Banks and the Indian Economy, 18761914,
New Delhi: Oxford University Press, 1989,
chapter 2, contains a survey.
CHAPTER 11
General demographic trends are discussed and
analyzed in Leela Visaria and Pravin Visaria,
Population (17571947), in CEHI 2, pp.
463532. Also useful are Ira Klein, Population
Growth and Mortality in British India, Part
I: The Climacteric of Death, IESHR, 26(4),
330 further readings
1989, pp. 387403; Ira Klein, Population
Growth and Mortality in British India, Part
II: The Demographic Revolution, IESHR,
27(1), 1990, pp. 3363; P.C. Mahalanobis and
D. Bhattacharya, Growth of Population in
India and Pakistan, 18011961, Artha Vijnana,
18(1), 1976, pp. 110; and Sumit Guha,
Mortality Decline in Early Twentieth Century
India: A Preliminary Enquiry, IESHR, 28(4),
1991, pp. 37191.
The famine literature is large. The
demographic and policy contexts are explored
in Tim Dyson, On the Demography of South
Asian Famines, Population Studies, 45(12),
1991, pp. 525, 27997; Ira Klein, When the
Rains Failed: Famine, Relief, and Mortality in
British India, IESHR, 21(2), 1984, pp. 185
214; David Hall-Matthews, The Historical
Roots of Famine Relief Paradigms, in Helen
ONeill and John Toye (eds), A World Without
Famine?, Basingstoke and London: Macmillan,
1998; Arup Maharatna, The Demography Of
Famines: An Indian Historical Perspective, New
Delhi: Oxford University Press, 1996.
Labour Force and Occupational
Structure
J. Krishnamurty, Occupational Structure,
in CEHI 2, pp. 53350. Dharma Kumar,
The Forgotten Sector: Services in Madras
Presidency in the First Half of the Nineteenth
Century, IESHR, 24(4), 1987, pp. 367292;
Alice Thorner, The Secular Trend in the
Indian Economy, 18811951, Economic and
Political Weekly, 14(2830), 1962, pp. 1156
65; Daniel Thorner, De-industrialization
in India, 18811931, in Daniel and Alice
Thorner, Land and Labour in India, New York:
Asia Publishing House, 1962; Alice Thorner,
Womens Work in Colonial India, London:
School of Oriental and African Studies, 1984.
Glossary*
adawlut, adalat: The word adalat has Arabic
root, and means a court of law. In the 1760s,
the officers of the East India Company in
Bengal found three kinds of courtsthe
nizamat or the criminal court, the dewanny
or the civil court, and the foujdari or police
courts. In 1793, the three layers were
consolidated into two, criminal and civil, and
a court of appeal was established. The court of
appeal was called the suddur or the chief court
(see also sudder).
amin and munsiff: Words of Arabic root,
amin and munsiff referred to the Indian judges
of the civil courts.
anicut: This was a term employed to describe
a form of dam construction pursued by the
Company engineers in deltaic south India
* Other than the scholarly literature, I have relied
on Henry Yule, Hobson-Jobson, London: John Murray,
1878 (second edition, edited by William Crooke); and
Anonymous, Dictionary of Words used in the East Indies,
London: James Asperne, 1804.
in the mid-nineteenth century. The word is
derived from the Tamil anaikattu meaning
dam building.
banjara, brinjari: Semi-nomadic peoples
who were engaged in the carriage of grain,
salt, cotton, and other bulk goods overland on
camels, horses, and bullocks. In the eighteenth
century, these groups became more important
than before as suppliers of provisions to
the armies as well as suppliers of goods to
the port cities where businesses had grown.
Two banjara naiks (leaders) at the end of the
eighteenth century were said to have 180,000
bullocks in their camps. Their importance did
not decline until the advent of the railways.
bania, banyan: Various versions of the
generic term bania (derived from the Sanskrit
term vanijya meaning business) for a Hindu
trader were used in pre- and early colonial
accounts. More narrowly, the term banyan
(and sometimes sircar) also applied to the
Bengali agents of European merchant houses
in Calcutta in the early nineteenth century.
332 further readings
Their counterparts in south India were called
dubash.
bigha: The standard measurement of land
(outside south India) in Mughal and colonial
India, the bigha came in two versions, the
bigha-ilahi (0.6 acres) and the raiyati bigha
(0.33 acres). These differences were related
to the measure of distance, the guz, which
came in different versions; the longer ilahi-
guz was used to measure larger units such
as agricultural land, the shorter guz was
used in building construction or homestead
measurements. The British Indian official
usage set the guz at three feet length, and
consequently, adopted the raiyati bigha as the
standard measure of area.
calico: Cotton cloth, usually of fine texture,
but not as fine as muslin (see also muslin).
The word almost certainly came from
Calicut, a word which was actually used in
the seventeenth century to refer to similar
products in Indo-European trade.
chintz: Printed cotton cloth (possibly derived
from the Hindustani chint). This was also
a generic name for printed cloth in Indo-
European trade in the eighteenth century. In
this trade, several other kinds of coloured cloth
were in use. Gingham, for example, stood for
cloth using pre-dyed yarn.
cooly: The generic term applied to many
categories of unskilled hired labourers. Cooly
was the standard word for Indian indentured
workers going overseas in the nineteenth
century. In one interpretation, the root of the
term was Koli, a western Indian population
group that may have supplied many hired
labourers to the seventeenth century European
settlers. Other theories attribute it to a Tamil
word meaning hire, and an Osmanli Turkish
word meaning slave.
dadan, dadni: Money advanced for the supply
of merchandise.
doab: The tract between two confluent rivers
(do-ab, or two waters, from the Persian ab for
water or liquid). In northern India, the Doab
would mean the land between the Ganges and
the Jumna. The Mughal Emperors named the
doabs between the Punjab rivers. The only
known south Indian doab is the Raichur Doab
between the rivers Krishna and Tungabhadra.
dewanny: In the pre-colonial north Indian
state, the kings dewan was in charge of the
civil administration, including collection of
revenues, sending money to the royal treasury,
and submission of the accounts to the king.
In 1765, the English East India Company
was appointed the dewan of the province of
Bengal, Bihar, and Orissa technically belonging
to the Mughal Empire. The Hobson-Jobson calls
dewan an Arabicized word of Persian origin.
dubash: Derived from the Hindustani term
dubhashiya or the one proficient in two
languages, dubash mainly applied to an Indian
agent of an European merchant in eighteenth
and nineteenth century south India (see also
bania, banyan).
factory: This English word was employed in a
specific sense in India, during the days of East
India Company. A factory was a place where
exportable goods were stored and delivered. In
Bengal, it was also called aurung.
ghat: Landing place on river banks; mountain
passes; and the mountain ranges that run along
the western and eastern coasts of peninsular
India.

gomashtah: The usual meaning of a
gomashtah in the eighteenth century was
that of an Indian agent of a European factor,
usually a salaried employee rather than a
commission agent like the banyan (see banya).
The employer in question was the East
India Company or private merchants. In the
nineteenth century, the term was also applied
to the village revenue officer appointed to
supervise other officers.
hakim: Variously used to refer to a respectable
officer or wise person, the term was applied
to a practitioner of yunani medicine from the
nineteenth century. In Arabic, the term hakm
would refer to a judge or an authority.
hundi: Bankers draft, bill of exchange. The
word was in wide currency in western and
northern India. Its origin is uncertain.
inam: A gift from a superior to an inferior,
the term was used in the nineteenth century
mainly in the context of land revenue, to refer
to land assessed at low rates of tax, which
had been granted to individuals as reward
for special service or merit. The broader
expression bazee zamin included a number
of other categories of lowly assessed land.
A considerable quantity of such lands was
brought under the purview of taxation in
British India, sometimes exacerbating local
political tension.
indenture: An employment contract
specifying a fixed term of employment.
The word had its origins in apprenticeship
contracts in early modern England, and
travelled onward to North America in the
nineteenth century. The most wide and
frequently controversial usage in the modern
times was in the context of overseas labour
migration from India to the tropical colonies.
further readings 333
jagir or jageer; jagirdar: In north India, the
pre-colonial term jagir, a word of Persian
origin, referred to an assignment of a part
of the revenues of the state to a superior
officer. One standard reason for the award
of a jagir was the military one; the revenues
were to be used for the maintenance of
troops under a commander, who held
the assignment. Further qualifications
specified whether or not the assignment
was perpetual, hereditary, unconditional,
or conditional upon the performance
of a specific service. In theory, most
jagirs reverted to the king upon an end
of the service. The award of a jagir was
implemented by the nazim, or the viceroy
of the province, who also supervised the
reversion of the jagir to the king. Various
terms and conditions of the jagir system fell
into disuse after the seventeenth century.
This happened because most revenue
grants to commanders and warlords became
effectively hereditary and land grants were
frequently made to non-military groups to
meet short-term deficits. The latter practice
was called farming by colonial officers, and
historians call it revenue or tax farming.
jobber: An old English term meaning an
intermediary (for example stock-jobbers as
dealers in the stock exchanges), the jobber
came to represent a particular category of
workers in the cotton textile mills of western
India. They were senior workers at times
engaged in recruitment, and more often in
supervision and training of workers under
them. In this sense, they undertook to perform
jobs for the managers (see also sardar and
kangany).
kangany: A middleman between workers
and supervisors, always a recruiter of labour,
usually a creditor and account keeper, and
334 further readings
sometimes a supervisor. The kangany was
popular in worksites where Tamil labourers
worked in large numbers. It was an alternative
to the more formal indenture system of labour
recruitment. As in the case of indentures, the
kanganies also became increasingly redundant
with the growth of individual labour migration
and greater frequency of such migration (see
also jobber and sardar).
karkhana: A hall where business in conducted.
In late Mughal Indian cities, places where
Handy-craftsmen do work were called
karkhanas, by Francois Bernier. Most of these
were owned by the wealthy consumers of these
craft goods. In the nineteenth and twentieth
century, the term took on a more commercial
meaning.
khot: The holder of a superior revenue right
(that is, right over several villages) in the
Maratha dominion, somewhat comparable
with the zamindar in Bengal.
mahajan: A generic term referring to a Hindu
or Jain merchant, banker, or shopkeeper.
malguzar: Malguzari referred to public
revenue. Mal, possibly a shorter version of
mahal, was used to mean a definite place
that yielded revenue. Any substantial local
officer in charge of collecting the revenues
and depositing it to the treasury could be
called malguzar. In some regions of India,
for example the uplands of central India, the
malguzars formed the village elite.
mansab, mansabdar: In Mughal India, those
entitled to the command of soldiers. Only
the kings sons were entitled to the command
of more than 5,000 each. A rule instituted
to ensure loyalty of the chief commanders it
increased the chances that succession disputes
would turn into military conflict amongst the
sons.
maulavi: Law officers and experts of Islamic
law, appointed in the courts of justice (see also
pandits).
maund: The standard measure of weight
(outside south India) was the maund. One
maund was divided into 40 seers, and one seer
was divided into 80 tolas, each tola being 180
troy grains. Each seer was then equivalent to
2.057 lbs, and one maund 37 kgs. The earlier
definitions of maund were quite different. In
the seventeenth century, the man-i-Akbari of
northern India was again divided into 40 seers,
but the seer of Akbar was of 30 dams, dam
being the copper coin, and weighing less. In
eighteenth century Bengal, both the Akbari
maund (25 kgs) and the colonial maund (37
kgs.) were in usage. In present-day Tamil
Nadu, the unit of weight most widely used in
bulk trading was the candy, usually 20 maunds,
but varying with the definition of the maund.
The word was also used in Marathi and
Telugu.
miras, mirasi, mirasidar: The word derives
from Arabic miras, meaning heritage,
succession or patrimony. In British Indian
administrative parlance, the term applied
to the holders of a hereditary tenure; more
narrowly, co-sharers of a joint tenure. This
was in common usage in the regions that came
under the ryotwari settlement.
mofussil: See sudder.
munsiff: See amin.
mughal: Literally, of the Mongols, the term
referred to the Timurid house of Babar, who
started an Empire in India.

muslin: A word that may have had an
association with Mosul in West Asia, muslin
was the generic name of any fine variety of
cotton cloth. Muslin was a sought after article
in Indo-European trade. The best muslins were
woven in Bengal, especially Dhaka, where
production continued well into the nineteenth
century.
Nawab: See Nazim.
Nayak, Naik: Generic Indian name of Sanskrit
origin for chief, commander, headmen; in
extensive use in the Deccan peninsula.
Nazim, Nawab: The viceroy or chief officer
of the Mughal provincial administration,
in charge of internal security and criminal
justice; also called subadar or nawab. In the
first quarter century of the Companys rule in
Bengal (176590), criminal justice was left to
the nazim.
Nizam: The hereditary title of the kings of
Hyderabad, and was in usage from the early
eighteenth century.
pagoda: See weights and measures.
panchayet: A council, literally a council of
five, and an institution for dispensing justice.
Usually associated with the self-administration
in the villages, the word was also used in the
context of caste or community courts, for
example, the Parsi panchayet.
Pandit: The Sanskrit root word refers
to a learned man. Ordinarily the term
would refer to a scholar of Sanskrit and
ancient texts, sometimes doctors, and in
some regions Brahmin scholars. In early
European descriptions, a PanditBrahman
further readings 335
and a Heathen doctor were often
used interchangeably. In British Indian
administration, the word applied to salaried
officers who were experts on Hindu law.
The period when such law officers were in
most demand was 17921821. The office
was abolished when the High Courts were
constituted in the 1860s. Within the last
30 or 35 years, The Hobson-Jobson (1902
edition) wrote, the term has acquired in India
a peculiar application to the natives trained
in the use of instruments. Pandits in this
sense referred to, say, skilled land surveyors.
This usage of the term later transferred on to
classical musicians.
Patel, Patil: Village headmen, especially in
western India.
Pathan: Common Hindustani term to
mean Afghans, or Indo-Afghans; possibly
derived from Pashtun. The prominent Pathan
dynasties to rule in Northern India were the
Lodi (fifteenthsixteenth century), the Suri
(sixteenth century), and possibly the Khilji
(turn of the fourteenth century) (see also
sultanate).
patta: A grant or lease document stating the
amount of land that could be used by the
holder of the grant, and sometimes specifying
the rent thereon.
patwari: An officer of the revenue system
who maintained the land registers and rent
accounts of a village. In pre-British north
India, the patwari and the superior, kanungo,
in charge of farmers in a larger area, were
the chief local officers, both maintained by
commissions on revenues or tax-free land.
These offices persisted, if on smaller salary, in
early British administration.
336 further readings
pedhi: A western Indian term to mean a
place of business, ranging from a shop to the
accounts office of a banker or merchant.
piece-goods: The name by which the whole
range of cloths exported from India before
1800 was referred in the trade; the name later
attached itself to the cotton cloths imported
from Manchester to India.
pindary: Mercenary cavalry hailing from
regions in Bundelkhand mainly. Their leaders
received land grants from the Maratha chiefs
of central India, and fought a series of minor
battles with the Companys army around 1817
before they disappeared as a body of soldiers.
poligar: An Anglicized version of the Tamil
palaiyakkaran or holder of an estate, the
term referred to chiefs of forts in the uplands
of southern India. In the seventeenth and
eighteenth century, the poligars held a
semi-independent position with respect to
the various powers that claimed dominion
over larger tracts, the Mughals, the Deccan
sultanates, the Marathas, the kings of Mysore
and Malabar, and the Company. All of these
territorial powers tried to subdue them, the
Company succeeded in this endeavour at the
turn of the nineteenth century.
poolbundy, pulbandy: From pool or bridge,
the word meant construction of embankments
along rivers and the seacoast. Poolbundy
was the main form of public works in early
nineteenth century India.
presidency: In British Indian administration,
the word seems to have been first used in
1661. Thereafter, it referred to the territory
administered by the principal factories of the
East India Company. It later attached to the
three principal administrative divisions within
British India, Bombay, Madras, and Bengal.
regur: Black cotton soil of south India.
regulation: The term applied to laws passed
by the Governor-general or the Governor
between approximately 1793, when the
first compilation of ad-hoc laws was made,
and 1833, when these offices became solely
responsible for legislation in India.
raiyat, ryot, ryotwari: The occupant of the
soil; can be a tenant or an ownerfarmer. The
Arabic word raiyat, by which peasants were
called in pre-British sources, meant subjects.
Ryotwari was a revenue system where
the peasants contracted directly with the
government the payment of revenue in lieu of
perpetual right on land.
revenue farming: See jagir.
rupee: The word has Sanskrit origin. The
Mughal monetary unit was the rupee, a silver
coin struck in the royal mint. The standard
content of the rupee was 16575 troy grains.
Almost all subsequent silver coins struck by
the Indian states were called rupee, including
the earliest coin by the Company minted
in India in 1677. After the disintegration of
the empire, rupees in circulation came in a
range of quality, weight, and value. The two
coins current in eighteenth century India
were the sicca and the Company rupee, both
minted by the Company. About 1800, ten
Company rupees or four pagodas made one
pound sterling. The highest denomination
in south India in the eighteenth century was
the Companys pagoda, originally minted by
the Nawab of Carnatic and also called Arcot
rupee. The pagoda could be of both gold and
silver, the silver coin was of slightly higher

silver content than the rupee. The rupee was
divided into 64 paise; and the pagoda was
divided into 3642 fanams. The exchange rate
of the British Indian rupee went through three
phases. The value held steady in 180070 at Rs
10 per pound sterling; and again between 1927
and 1947 at Rs 13.3 per pound. In between,
it depreciated from 10 to 17.2 (18711900),
appreciated from 17.2 to 9.2 (190020); and
depreciated again from 9.2 to 13.3 (19207)
(see also section on Exchange Rate in the
contents for more details).
sardar: From Persian sardar, the word meant
leader, commander, officer, or chief. The
specific use as commander of armies was
common in Punjab and Maratha territories. In
colonial India, one popular use of sardar was in
the context of factory and plantation workers,
to mean the head of a gang of workers.
seer: A unit of weight (see also maund).
settlement: A term in general use in the
British Indian land revenue administration.
It meant an arrangement whereby the tax
obligation of the landholder was calculated and
kept constant for a fixed term. In the zamindari
areas, there was one Permanent Settlement
(1793), following on several decadal ones. In
the ryotwari areas, settlements were carried
out periodically, accompanied by extensive
land surveys.
shroff: Banker, money changer (from Arabic
sayraf).
sipahi, sepoy: The term used for Indian
soldiers in the colonial Indian army, the word
originated in the Persian word sipahi.
subadar: See Nazim.
further readings 337
sudder and mufassil or mofussil: The two
terms formed a pair, and meant, respectively,
the centre and the branches. Sudder (from
Arabic root sudud, or chief) usually meant the
capital or the head office, and the mofussil the
district administrative centre or the village.
The two terms came into wide usage in British
Indian administrative and popular parlance, for
example in the Sudder Dewanny Adawlat, or
the chief court of civil justice. In Hindustani,
mufassal (of Arabic root) meant separate,
particular, or provincial. In colonial Indian
usage, the mofussil was ordinarily employed
to mean the undefined small town, with only a
small presence of European settlers.
sultan, sultanate: The term was of Arabic
origin and in wide use in west Asia and Egypt
in the sense of a king. The term came to the
region of Punjab possibly with the Mahmud
of Ghazni (late tenth century), and applied
to the Turko-Afghan kings who ruled from
Delhi before the Mughals. There were many
areas of administrative continuity between the
sultanate kingdoms and the Mughals (see also
Mughal, Pathan).
talukdar, talookdar: The holder of a
perpetual lease in land, usually under a
zamindar, and therefore, inferior to a zamindar.
In some regions, the talukdar was the
counterpart of the zamindar.
thug, thuggee: A group of robbers who
strangled unsuspecting road travellers. They
were suppressed by Captain William Sleeman
in the 1830s. It is not known how serious or
extensive the danger to travellers really was,
but thuggee captured the imagination of many
contemporaries, who wrote novels about
them.
338 further readings
vakil, vakeel: Attorney or agent. Before the
British Indian courts, the vakil was usually
an agent negotiating in business as well as
political disputes that involved wealthy parties.
In the courts system, the term referred to the
lawyers.
weights and measures: British Indian official
metrology adopted existing Indian measures,
defining the units uniformly across regions (see
also bigha, maund, seer, and rupee).
zamindar: In Mughal India, the zamindar was
a local revenue officer, usually resident of a
large village. The rights to land tended to be
hereditary, and the condition of service was
civil rather than military. East India Company
changed the meaning into a person who held
a land in perpetuity upon the promise to pay
the government a rent. The cultivators of soil
under that arrangement were the tenants of the
zamindar.