Economic Impact of British Colonial Rule: Land Revenue Settlements in British India; -Commercialization of Agriculture; Rise of Landless Agrarian Labour; Famines and Poverty; De-industrialization; Decline of Traditional Crafts; Drain of Wealth

India’s traditional village economy was characterised by the “blending of agriculture and handicrafts”.  But this internal balance of the village economy had been systematically slaughtered by the British Government. In the process, traditional handicraft industries slipped away, from its pre-eminence and its decline started at the turn of the 18th century and proceeded rapidly almost to the beginning of the 19th century.  This process came to be known as ‘de-industrialisation’—a term opposite to industrialisation. The use of the word ‘de-industrialisation’ could be traced to 1940. Its dictionary meaning is ‘the reduction or destruction of a nation’s industrial capacity’. This term came into prominence in India to describe the ‘process of destruction of Indian handicraft industries by competition from the products of British manufacture during the nineteenth century’.

Industrialisation is associated with a relative shift in the proportion of national income as well as workforce away from agriculture. In other words, with the progress of industrialisation, proportion of income generated by and the percentage of population dependent on industry should decline.  While estimating the distribution of global output of manufactured goods, P. Bairoch concluded that India’s share of manufacturing output in the world was as high as 1.9.7 p.c. in 1800. In a span of 60 years, it plummeted to 8.6 p.c. (in 1860) and to 1.4. p.c. in 1913. The declining share of industrial output in the’ world output could be attributed to an absolute decline in manufacturing output per person.


Causes of Decline:

  1. Decline of Indian courts: The disappearance of Indian courts struck the first blow at Indian handicrafts. As native states passed under British rule, the demand for fine articles, for display in durbars and other ceremonial occasions disappeared. The ordinary demand did continue for sometime longer, but the younger generation lacked the means and inducement to patronise the arts and handicrafts. And they declined.
  2. The Establishment of British Rule: The establishment of British rule in India affected cottage industries both directly and indirectly. Directly it led to the establishment of peace and order in the country which adversely affected such handicrafts as the inlaying of arms, weapons and shields. This craft was common in the Punjab and Sindh.  By eliminating the need for such weapons and by prohibiting their possession and use, the British reduced the industry to producing ornamental knick-knacks for European tourists. Similarly, the establishment of the British rule made it neces­sary, through an un-written order, for Indians to wear patent leather shoes when in the presence of British superiors.This brought about the decay of the embroidered shoe industry. Indirectly, the British rule weekend the power of the guilds which regulated trade and supervised the quality of work done. As a consequence, evils such as the adulteration of raw materials and poor work­manship crept in and artistic and commercial value of the products deteriorated.
  3. Western Education: The new system of English education was another contributory factor. In the early stages, the newly educated Indians were more westernized than even the Europeans themselves. They blindly accepted European standards and fashions and looked down upon everything Indian.  Matters came to such a sorry pass that to follow European tastes was regarded as the hall mark of enlightenment. As a result, demand for the products of indigenous industries declined while that for Europeans goods increased.
  4. Introduction of New Patterns: With the disappearance of Indian states, old rulers and nobles also disappeared and their place was taken up by the European Officers and tourists. Indian craftsmen, however, did not clearly understand the forms and patterns which suited European tastes.  They tried to please their new customers by copying their forms and patterns. Very often, the new products were very poor copies of the original and “lacked the vigour and life” of the indigenous products. An instance of this kind is furnished by the Kaftgiri Industry in the Punjab which declined due to indiscreet European patronage.
  5. Competition of Machine Made Goods: Apart from the abolition of Indian courts and the introduction of foreign influences, it was the superior manufacturing technique based on power and im­proved machinery which enabled the British manufacturers to drive the Indian artisans from out of their home market. It was what Ranade calls, the competition of Natures’ powers against man’s labour’ which completed the ruin of Indian handicrafts.  The invention of the power loom in Europe brought about the ruin of the Indian textile industry and, by 1834-35,” the bones of the cotton-weavers were bleaching the plains of India.” The same story may be recounted of other Indian industries such as the ship-building Iron smelting, glass, dyeing and paper manufacture. The Indian domestic and cottage handicrafts could not possibly have withstood foreign competition which was backed by a powerful industrial organisation, big machinery, large-scale production and complex division of labour.  The difficulties of the Indian industries were further aggravated by the construction of the Suez canal, fall in freight rates and the reduction of transport costs which made British goods more cheap in India.
  6. Policy of the British Govt.: In the beginning, the commercial interests of East India company led it to encourage Indian industries because its exports from India were largely drawn from them. This policy, however, met with determined opposition from vested interests in England which compelled the company to concentrate only on the export of raw- materials so necessary for the expanding British Industries.  This policy of making India subservient to the industries of Great Britain was followed with rare determination and fatal success. Orders were issued to force Indian artisans, especially silk-winders, to work in the company’s factories and not in their homes; commercial residents were vested with extensive legal powers over villages and communities of Indian weavers. The use of dyed Indian calicoes was prohibited. Extensive use was made of custom duties to crush Indian in­dustries. For instance, in 1813, cotton and silk goods of India could be profitably sold in the British market at a price 50-60% lower than the price of cloth manufac­tured in England. However, duties ranging from 70-80% on their value were imposed on Indian textiles in order to drive them out of the British market.
  7. Role of Intermediaries: Except the village subsistence and rural art industries, in all others, the extension of the market led to the emergence of dealers and financiers who reduced the artisans to “hewers of wood and drawers of water” for their masters. The part played by middlemen in bringing about this stale of affairs is best illustrated by the activities of the East India Company itself.  The company, being a dealer in the products of cottage industries, made advances in cash and raw-materials to buy the finished products. Having done so once, it held the craftsmen under its iron grip.  For example, it provided that a weaver, who had received advances from the company, “shall on no account give to any other person, European or native, either the labour or the produce engaged to the company” that, on his selling the cloth to others, the “weaver shall be liable to be prosecuted in the Diwani Adalat” ; that weaver “shall be subject to a penalty of 35% on the stipulated price of every piece of cloth that he fails to deliver according to the written agreement”.  Whenever the artisans were unable to carry out the agreements forced upon them, their goods were forcibly seized and sold on the spot to make good the deficiency. Unable to resist this injustice, many weavers     “cut off their thumbs to prevent their being forced to weave silk.”

Impact of decline of handicraft industry on india

Cheap and machine-made imports flooded the Indian market after the Charter Act of 1813 allowing one-way free trade for the British citizens. On the other hand, Indian products found it more and more difficult to penetrate the European markets.  After 1820, European markets were virtually closed to Indian exports. The newly introduced rail network helped the European products to reach the remotest corners of the country.

The loss of traditional livelihood was not accompanied by a process of industrialisation in India, as had happened in other rapidly industrialising countries of the time. This resulted in deindustrialisation of India at a time when Europe was witnessing a re-intensified Industrial Revolution. This happened at a time when Indian artisans and handicraftsmen were already feeling the crunch due to loss of patronage by princes and the nobility, who were now under the influence of new western tastes and values.  Another feature of deindustrialisation was the decline of many cities and a process of ruralisation of India. Many artisans, faced with diminishing returns and repressive policies (in Bengal, during the Company’s rule, artisans were paid low wages and forced to sell their products at low prices), abandoned their professions, moved to villages and took to agriculture.

This resulted in increased pressure on land. An overburdened agriculture sector was a major cause of poverty during British rule and this upset the village economic set-up.  From being a net exporter, India became a net importer.


Critical evaluation of deindustrialization

Nationalists and Their Critique

Nationalists, Dada Bhai Naoroji, M.G. Ranade and R.C. Dutt, Rajni Palme Dutt etc. saw the destruction of Indian industry as a consequence of colonialism and they discussed deindustrialization process in context of the impact of colonial rule in India. In the beginning of the 19th century, exports of small-scale industry products came down, while on the other hand, imports of British industrial products were on the increase. This decline could be traced in cotton textiles’ import by Britain between the period 1860 (96 million pound sterling) to 1880 (1 billion 70 million pound sterling) and finally in 1900 (27 billion pound sterling). R.C. Dutt and others argue that the decline in imports shows that the demands for Indian textiles was coming down in foreign markets in the beginning of the 19th century and increasing exports indicate that the Indian handicrafts were thrown out from the indigenous market. This policy was pursued with the object of replacing the manufacturers of India, as far as possible, by British manufacturers.                                In 1960’s David Morris David questioned the assumptions and arguments of the Nationalists. He said that there was not much evidence available to demonstrate deindustrialization process in India. Morris claimed that British manufactured clothes did not harm the Indian industry because the population of India was increasing along with an increase of purchasing power of the Indians that led to an increase in demand for Indian textiles in India; so the demand for clothes was met by raising British imports, without damaging indigenous production.     Bipin Chandra, Toru Matsui and Tapan Roychaudhuri have argued, in response to Morris, that evidence points towards deindustrialization. Going by reports of famines, eye witnesses and traveler’s accounts, official enquiries and government reports of the British East India Company etc. were all pointers towards the worse possible impact of British manufactured goods in India. These thinkers said that there was not enough.

to woven cloth was very low. During 1849 to 1889 the import of cloth increased by 25.5 million sterling, while on the other hand, yarn imports increased by merely 1.8 million sterling. Indian weavers, therefore, could not really benefit from the decline in yarn prices that was comparatively less fruitful as it did not bring about the required reduction in the cost of their cloth to be able to compete with British machine-woven cloth, which was a lot cheaper.     Morris also argued that in spite of the imports from Birmingham, Manchester etc. Indian small-scale industry survived because Indian small-scale industry produced its own market. Though there exists no evidence that Indian industry did not face any destruction, but Morris gave a partial answer to this question by being surprised how Indian small scale-industry survived in spite of oddities before the nation and the arrival of competition, vide machine made cheaper imported commodities. However, the reality is that despite adverse circumstances, the weavers did not abandon their occupation because they had deep attachment with caste-based occupations. The other reason was that they had no other alternative to earn their livelihoods and many were trapped in debt.

The Nationalist faced a common criticism that they had not enough evidence to demonstrate deindustrialization, specifically in the period prior to recordings made by the census. However later historians, like Amiya Kumar Bagchi, managed to get some statistical evidence. Bagchi showed the evidence provided by the survey conducted by Francis Buchanan- Hamilton in Gangetic Bihar between 1809-1813 and the census data of 1901. According to Bagchi’s analysis, the percentage of population dependent on industries was 18.6 in 1809-1813, which declined to 8.5 percent in subsequent findings     Marika Vicziany pointed out that Buchanan- Hamilton’s survey could not be regarded as very reliable as he gathered information from local people, who may have given him incorrect information due to fear of the motive of foreigners. Local people further suspected that the East India Company might use the information to increase revenue or intervene in their lives. Vicziany also argued that Buchanan- Hamilton’s classification of spinners was not very accurate because spinners could not have supported themselves only on the basis of spinning; in her view spinners did not earn enough and should be classified as part-time spinners. So the estimate of spinners was erroneous. Bagchi responded and said even if spinning did not support spinners fully it constituted the principal means of their livelihood .

The Other Side of the Debate

In the early 1960s Daniel Thorner argued that the censuses from 1881-1931 showed that there was not much change in the proportion of population engaged in industrial occupations. He elaborated that on a first impression, the census figures indicate that the male work-force in agriculture was 65% and increased to 72% in 1931. In the same period their proportion in industry declined from 16% in 1881 to 9% in 1931 suggestive de-industrialization. However, Thorner questioned this by describing the census categories as erroneous because it assumed a clear-cut separation between agricultural work-force and general labour-force and between industrial work-force and trade. In Daniel’s view, this hard segregation was not possible in an agricultural economy like that of India which constrained people, during seasonal periods, to shift from one industry to another.

According to the Thorner, if these categories are merged then the picture looks different. Then the increase in the work-force in the primary sector, i.e. agriculture works out to about 2% and the decline in industry and trade amounts to only about 3% between 1881-1931. Thorner also dismissed the statistics on female labour on the ground that census officials themselves regarded them as inaccurate. Therefore in their view, which is somewhat controversial, the census figures do not provide evidence to support substantial de-industrialization. Nonetheless, Thorner, however, conceded that there may have been de-industrialization in India before 1881.

Some questions were raised by Tirthankar Roy and others, who have objected to the exclusion of women from the analysis. Women’s participation declined dramatically during the census period. It seems that in the Indian social context, women in many artisan families gave up artisanal work earlier than men to take up household or agricultural work. Hence any exclusion of their data would not show much change in occupational structure while the inclusion of data related to women will show a decline in the number of people engaged in industrial activity.     Recent research suggests that different regions and commodities experienced the impact of machine-made goods in different ways, depending on when they came under colonial rule. Thus for example, British-manufactured goods affected the economy of eastern India far more than other regions. Historians like Tapan Roychaudhury argue that the conditions of the artisans and weavers of eastern India started deteriorating soon after the Battle of Plassey (1757) and their condition worsened in the 19th century. It has also been suggested that that the Madras Presidency suffered less compared to Bengal and western India.

Urban Indian economy after 1858

During this period, the Indian economy essentially remained stagnant, growing at the same rate (1.2%) as the population.  India also experienced deindustrialization during this period. Compared to the Mughal era, India during the British colonial era had a lower per-capita income, a large decline in the secondary sector, and lower levels of urbanization. India’s share of the world economy and share of global industrial output declined significantly during British rule.

Some of the important features of Indian urban economy during this period are as follows:


In the seventeenth century, India was a relatively urbanised and commercialised nation with a buoyant export trade, devoted largely to cotton textiles, but also including silk, spices, and rice. India was the world’s main producer of cotton textiles and had a substantial export trade to Britain, as well as many other European countries, via the East India Company. Yet as the British cotton industry underwent a technological revolution during the late 18th to early 19th centuries, the Indian industry stagnated and deindustrialized. India also underwent a period of deindustrialization in the latter half of the 18th century as an indirect outcome of the collapse of the Mughal Empire.  Even as late as 1772, Henry Patullo, in the course of his comments on the economic resources of Bengal, could claim confidently that the demand for Indian textiles could never reduce, since no other nation could equal or rival it in quality. However, by the beginning of the nineteenth century, a beginning of a long history of decline of textile exports is observed .

A commonly cited legend is that in the early 19th century, the East India Company (EIC), had cut off the hands of hundreds of weavers in Bengal in order to destroy the indigenous weaving industry in favour of British textile imports (some anecdotal accounts say the thumbs of the weavers of Dacca were removed). However this is generally considered to be a myth, originating from William Bolts’ 1772 account where he alleges that several weavers had cut off their own thumbs in protest at poor working conditions. Several historians have suggested that that the lack of industrialization was because India was still a largely agricultural nation with low wages levels, arguing that wages were high in Britain so cotton producers had the incentive to invent and purchase expensive new labour-saving technologies, and that wages levels were low in India so producers preferred to increase output by hiring more workers rather than investing in technology. Several economic historians have criticized this argument, such as Prasannan Parthasarathi who pointed to earnings data that show real wages in 18th-century Bengal and Mysore were higher than in Britain. Workers in the textile industry, for example, earned more in Bengal and Mysore than they did in Britain, while agricultural labour in Britain had to work longer hours to earn the same amount as in Mysore. According to evidence cited by the economic historians Immanuel Wallerstein, Irfan Habib, Percival Spear, and Ashok Desai, per-capita agricultural output and standards of consumption in 17th-century Mughal India was higher than in 17th-century Europe and early 20th-century British India.

British control of trade, and exports of cheap Manchester cotton are cited as significant factors, though Indian textiles had still maintained a competitive price advantage compared to British textiles up until the 19th century. Several historians point to the colonization of India as a major factor in both India’s deindustrialization and Britain’s Industrial Revolution. British colonization forced open the large Indian market to British goods, which could be sold in India without any tariffs or duties, compared to local Indian producers who were heavily taxed, while in Britain protectionist policies such as bans and high tariffs were implemented to restrict Indian textiles from being sold there, whereas raw cotton was imported from India without tariffs to British factories which manufactured textiles from Indian cotton. British economic policies gave them a monopoly over India’s large market and raw material such as cotton. India served as both a significant supplier of raw goods to British manufacturers and a large captive market for British manufactured goods.

Decrease in the share of world GDP

India’s share of the world economy went from 24.4% in 1700 to 4.2% in 1950. India’s GDP (PPP) per capita was stagnant during the Mughal Empire and began to decline prior to the onset of British rule.India’s share of global industrial output also declined from 25% in 1750 down to 2% in 1900. At the same time, the United Kingdom’s share of the world economy rose from 2.9% in 1700 up to 9% in 1870,and Britain replaced India as the world’s largest textile manufacturer in the 19th century. Mughal India also had a higher per-capita income in the late 16th century than British India had in the early 20th century, and the secondary sector contributed a higher percentage to the Mughal economy (18.2%) than it did to the economy of early 20th-century British India (11.2%). In terms of urbanization, Mughal India also had a higher percentage of its population (15%) living in urban centers in 1600 than British India did in the 19th century.

number of modern economic historians have blamed the colonial rule for the dismal state of India’s economy, with investment in Indian industries limited since it was a colony. Under British rule, India experienced deindustrialization, the decline of India’s native manufacturing industries. The economic policies of the British Raj caused a severe decline in the handicrafts and handloom sectors, with reduced demand and dipping employment; the yarn output of the handloom industry, for example, declined from 419 million pounds in 1850 down to 240 million pounds in 1900. Due to the colonial policies of the British, the result was a significant transfer of capital from India to England, which led to a massive drain of revenue rather than any systematic effort at modernisation of the domestic economy.

Development of Railway

British investors built a modern railway system in the late 19th century—it became the then fourth largest in the world and was renowned for quality of construction and service. The government was supportive, realising its value for military use, as well as its value for economic growth. All the funding and management came from private British companies. The railways at first were privately owned and operated, and run by British administrators, engineers and skilled craftsmen. At first, only the unskilled workers were Indians. A plan for a rail system in India was first put forward in 1832. The first train in India ran from Red Hills to Chintadripet bridge in Madras in 1837. It was called Red Hill Railway. It was used for freight transport only. Few more short lines were built in 1830s and 1840s but they did not interconnect and were used for freight transport only. The East India Company (and later the colonial government) encouraged new railway companies backed by private investors under a scheme that would provide land and guarantee an annual return of up to five percent during the initial years of operation. The companies were to build and operate the lines under a 99-year lease, with the government having the option to buy them earlier. In 1854 Governor-General Lord Dalhousie formulated a plan to construct a network of trunk lines connecting the principal regions of India. Encouraged by the government guarantees, investment flowed in and a series of new rail companies were established, leading to rapid expansion of the rail system in India.

In 1853, the first passenger train service was inaugurated between Bori Bunder in Bombay and Thane, covering a distance of 34 km. The route mileage of this network increased from 1,349 km in 1860 to 25,495 km. in 1880 – mostly radiating inland from the three major port cities of Bombay, Madras, and Calcutta. Most of the railway construction was done by Indian companies supervised by British engineers. The system was heavily built, in terms of sturdy tracks and strong bridges. Soon several large princely states built their own rail systems and the network spread to almost all the regions in India. By 1900 India had a full range of rail services with diverse ownership and management, operating on broad, metre and narrow gauge networks.


The Great Depression The worldwide Great Depression of 1929 had a small direct impact on India, with relatively little impact on the modern secondary sector. The government did little to alleviate distress, and was focused mostly on shipping gold to Britain. The worst consequences involved deflation, which increased the burden of the debt on villagers while lowering the cost of living. In terms of volume of total economic output, there was no decline between 1929 and 1934. Falling prices for jute (and also wheat) hurt larger growers. The worst hit sector was jute, based in Bengal, which was an important element in overseas trade; it had prospered in the 1920s but was hard hit in the 1930s. In terms of employment, there was some decline, while agriculture and small-scale industry also exhibited gains.The most successful new industry was sugar, which had meteoric growth in the 1930s.

It is often believed that the colonial administration encouraged the commercialization of agriculture that improved the position of peasants in many areas of the Indian colony. From the 1860s onwards, the nature of agricultural production was determined by the demands of the overseas markets for Indian primary products. The items exported in the first half of the nineteenth century included cash crops like indigo, opium, cotton and silk. Gradually raw jute, food grains, oil seeds and tea replaced indigo and opium. Raw cotton remained the most in demand item. This expansion in cash crop production was accompanied by the building of railways, after 1850, to improve trade networks.

But commercialization seems to have been a forced artificial process that led to very limited growth in the agricultural sector. It led to differentiation within the agricultural sector, but did not create the figure of the ‘capitalist landowner’ as in Britain. The lack of any simultaneous large scale industrial development meant that accumulated agrarian capital had no viable channels of investment, for it to be converted into industrial capital. Initiatives to expand the productive capacity and organization of agriculture was also a risky proposition, as the sector catered to a distant foreign market with wildly fluctuating prices, while the colonial state provided no protection to agriculturists. Commercialization thus, increased the level of sub-infeudation in the countryside and money was channelised into trade and usury.

The so called process of commercialization, which was supposed to lead to capitalist agriculture, was often carried out through very exploitative and almost unfree forms of labour. Tea was grown in plantations in Assam, owned by whites, and they used inden- tured labour, which was almost like slavery. White planters had to force farmers to grow indigo because it yielded low profits and upset the harvesting cycle. This involved inhuman levels of coercion, which eventually led to the indigo-rebellion in 1859-60. Commercialization did lead to limited phases of success in the cotton producing areas of western India in 1860s and in jute production in eastern India, but they were because of increases in demand rather than capitalist innovation in production and organization.

Farmers were forced to grow cash crops also because they had to pay the high revenue, rents and debts in cash. The shift away from food crops like jowar, bajra and pulses to cash crops often created disaster in famine years. A decline in world demand for Indian cotton led to heavy indebtedness, famine and agrarian riots in the Deccan cotton belt in the 1870s. The jute industry collapsed in the 1930s, which was followed by a devastating famine in 1943 in Bengal. Although, causes of these famines have been widely debated by historians, it is undeniable that the aggregate pro- duction of food crops remained far behind population growth, and millions of people died of starvation and epidemics.

TSPSC  Notes brings Prelims and Mains programs for TSPSC  Prelims and TSPSC  Mains Exam preparation. Various Programs initiated by TSPSC  Notes are as follows:- For any doubt, Just leave us a Chat or Fill us a querry––

Hope we have satisfied your need for TSPSC Prelims and Mains Preparation

Kindly review us to serve even better

TSPSC Mains Test Series 2022

20 Quality mock tests and GS Mains Notes

Mains Test Series and Notes

Mains Printed Notes (With COD)

TSPSC Prelims Test Series 2022

24 Quality mock tests and GS Prelims Notes

Prelims Test Series and Notes

Prelims Printed Notes (With COD)

Subscribe to TSPSC Notes

Never Miss any TSPSC important update!

Join 2,512 other subscribers

error: Content is protected !!