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Impact of Colonial Rule on the Indian

Economy, 1757-1947

Venkatesh Athreya
Indian Economy circa 1757
• Overwhelmingly an agrarian economy

• Rural economy consisted of zamindars, rich peasants, the lower


orders of the peasantry and a landless agricultural wage labour
force under conditions of bondage.

• Land revenue was extracted by the sovereign, and accounted


for most of the surplus above peasant subsistence; another
small part went to the zamindars.

• Urban economy-including commerce and long distance trade-


was parasitical, and based on the surplus exacted from the
peasantry by the sovereign.
Rule of East India Company of Britain
• Took over the revenue and taxation powers from the
sovereign rulers

• Treated entire land revenue net of costs of administration


as profits and used this money to buy Indian goods at very
low prices

• Sold these goods all over the world at much higher prices,
thus increasing their profits further

• In essence, Indian tribute financed British capitalist


development. Some estimates put the surplus extracted from
India at about 10 % of India’s output or 2-3 % of Britain’s GDP
or about one-third of capital formation in UK; this continued
more or less throughout the colonial period.
Phases of colonial rule
• 1757-1800: Prime focus on converting surplus extracted
through land revenue into commodities purchased cheaply
from India and sold dear elsewhere in the world
• 1800-1850: Extraction of surplus continues unabated.
Indian industry destroyed by cheap imports from Britain-
classic case being textiles; massive de-industrialization
and de-urbanization.
• 1850-1914: British capital invests in India, mostly in
plantations, textiles, cement, sugar and railways; this is
also the period of emergence of Indian businesses such as
Tata and Birla
• 1914-1947: Two wars and the crisis between the wars; Rise
of national movement, assertion by Indian capital and
progress to Independence
Political Development under Colonial Rule: Some Key Dates
• 1757-1857: Rule by East India Company

• 1857: The Great National Revolt

• 1858-1947: Direct Rule by the British Crown

• 1885: Founding of the Indian National Congress

• 1920: First Conference of the All India Trade Union Congress

• 1930s: Organizations of Farmers, Students, Youth and Women, all


linked to the freedom struggle, emerge

• 1947: India gains Independence, but the country is also partitioned


Overall Economic Impact of Colonial Rule

• Massive surplus extraction


• Emergence of Extreme Concentration of Land
Ownership
• Forced commercialization of agriculture and
frequent famines
• Neglect of Irrigation and Rural Infrastructure
• Prolonged agricultural and rural stagnation
• De-industrialization
• A backward economy in every sense by 1947
India at Independence

• Weakening of Imperial Powers

• Emergence of Socialist Camp

• Massive Decolonization

MANDATE FOR INDEPENDENT


DEVELOPMENT
India at Independence

•Militant movements of the peasantry

•The Naval Revolt

•Working Class Struggles


Indian Economy at Independence
• Backward Economy in every sense of the term:
Agriculture, Industry, Infrastructure, Education, Health,
Financial Sector, Other Services

• Hence, Crucial Role of State

• National Consensus on Planning

• Public Sector as Leading Development


Key Goals of Public Sector

• Meant to promote private enterprise


economy

• Help achieve self-reliance

• Build crucial infrastructure: Energy,


Transport, Communications, Education
and Health
Key Goals of Public Sector
• Help achieve balanced regional
development in our vast and diverse
country

• Serve social objectives, not merely the


goal of profitability

• Serve the strategic needs of the country


Key Role played by Public Sector:
Some Examples

• Steel Industry

• Power Sector

• Oil Sector

• Telecom

• Green Revolution