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Lassize Faire Theory & Critique

Monday, March 5 2012, 12:53 PM

Free Traders & Changing Character of £ Rule

Factors Responsible
1. Up until the end of 18th century, £ company was exporting Indian goods to £ and paying for them out of Indian
revenues. This benefitted the company shareholders only.
2. By this time, industrial revolution had made significant headway in £ and it had become a manufacturing hub. A
new class of manufacturer capitalists had emerged which gained nothing out of the policy of £ company. They
stood to gain not by import of Indian products but by export of their own manufactured goods. They also
wanted imports of raw materials from India to serve as inputs for their enhanced production.

Evolution
1. In 1769, an act was passed compelling £ company to export £ 380k of £ manufactured goods p.a. even if it
suffered a loss on it.
2. In 1793, they forced the £ company to grant them use of 3000 tonnes of shipping p.a.
3. In 1812, a parliamentary committee was appointed to discover how £ manufacturers could replace Indian
manufacturers and finally in 1813, £ company's monopoly was ended. Thus Indian economy became a
colonized economy.

Impact
(a) Economic
1. To increase the market for £ goods and source of raw materials, £ followed a policy of free trade for £ exports
into India and imposed stiff tariffs on Indian manufactured products. This led to complete ruin of Indian artisans.
The ruin increased the pressure on land and it was only the strong joint family system which cushioned the
impact.
2. India became an economic colony. Export of handicraft products plummeted while that of raw materials
zoomed. Textiles which were chief item of exports for centuries were now imported.
3. This led to the development of improved means of communications like railways, roads, telegraph.
4. Indian industry couldn't develop due to biased trade policies, import duties on machinery and preference for
foreign capital.

(b) Political
1. To increase further, they followed a policy of new territorial expansion. Thus Lord Hastings and Dalhousie
greatly expanded the territory of £ India empire and the areas which produced raw materials or were lucrative
markets were special targets.
2. It increased £ grip on India.

(c) Social
1. It was decided to westernize Indian education so as to create western taste in Indians so that they would be
market for £ goods and its supports.
2. Christian missionary activities were to be supported for the Anglicization of Indian society.

Pre-Independence Industrialization of India

Debate #1 Deindustrialisation: Result of £ Policy or Indian Socio-Economic Structure
Morris D Morris recognizes the role of £ policy in lack of Indian industrialization, but he also cites other reasons.
1. India didn't have the market for mass goods. Per capital income was low and purchasing power was in the
hands of only a few people.
2. Indian towns were pilgrimage / administrative centers. Manufacturing was dispersed into villages.
3. Indians avoided technology change. Exchange of knowledge was also very little. Indians didn't adopt iron
casting even though it was introduced in € in 14th century.
4. Human capital was scarce in India along with physical capital. Unskilled labor only was plenty.
5. They accorded low social status to manufacturers. Manufacturing was strongly family based.

Early Patterns
1. Organized sector grew but remained only a fraction of total employment.
2. Dominant sectors were textiles, food processing and metallurgy.
3. Regional distribution was very lopsided. Bengal and Bombay were main centers.

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Common Challenges
1. Price volatility after wars.
2. £ customs policy.
3. Fx appreciation.

Indian Economy @ Independence

Social Indicators
1. Education: Illiteracy was 85%.
2. Health: Mortality rate was 2.7%, infant mortality was 180, life expectancy was 32 years.
3. Level of urbanization: Only 15% population lived in urban areas.

Economic Indicators
1. Employment: 72% of labor force was engaged in agriculture (~27% were agriculture labor indicating pressure
on land), industry employed 10% (organized industries only 2% and remaining 8% by SSIs), remaining 18% ion
services.
2. Composition of national income: ~50% came from agriculture, 17% from industries (10% from SSIs and only
7% from modern manufacturing), 33% from services.

Agriculture
1. Declining productivity: Per capita production declined @ 0.72% p.a. between 1911 - 1941(Blyn). Per capita
availability was only 400 g and even this was after the imports (10% of domestic production). The imports ate
up 20% of our export earnings back then.
2. Shift to cash crops: Per capita food grain production declined by 1.14% p.a. between 1911 - 1941 while non
food grain production increased by 0.57% p.a. in the same period. Food grain yields were down @ 0.44% p.a.
while non food grain yields were up @ 1.15% p.a. The improvement in non food grains was not a result of any
improved institutions or techniques but merely a shift of better land form food grains to cash crops.
3. Reasons: Zamindari system, usury, bonded labor, internal drain of capital (high LR with no investment back),
high rate of tenancy (only 28% of rural households worked on their lands in 1951, rest was tenants, share
croppers and labor) and poor technology (only 11% area used improved seeds, chemical fertilizers use was
only 0.1 MT).

Industry
1. Deindustrialization: £ followed a systematic policy of deindustrializing India. Between 1815 to 1832 India's
textiles exports dropped by 92% and in 1850 India was buying 25% of £ textiles exports. Even the benefits of
railways went to £ as their positive externalities (in terms of backward linkages while construction and forward
linkages while operation) went to £ as £ capital was used, £ coal and steel was used and £ used railways to
export raw materials from India.
2. Modern industrial development: From 1850s modern industry began to develop in India but it was confined
mainly to textiles (cotton and jute) and Bombay - Ahemdabad and Hooghly region. Iron and steel began to
grow only after 1907 and others in 1930s. Still textiles comprised of 57% of total manufacturing output in 1951
(next being engineering @ 8.4% and steel @ 7.6%). Even though the pace of development was fast by 1951 it
accounted only for 7.5% of the GDP (up from 3.8% in 1913). They employed only 2% of the labor force.
3. Absence of core sectors: A characteristic feature was under development of capital goods and modern banking
and insurance sectors. India relied on imports to meet ~90% of its machinery needs in 1951.
4. Gradual indianization of capital: This happened specially during and after WW1 and Indian industries
developed mainly in consumer goods sector and by WW2 India was mainly self sufficient in this sector. Some
intermediate goods industries like cement and iron and steel were also in Indian hands. By independence,
Indian capital controlled ~60% of the large industrial units.
5. Growing linkages: In 1930s, there began a shift of capital from usury, landlordism to industry. Links between
industry and agriculture grew stronger. The new industries were mainly catering to home market instead of
foreign market.
6. Public debt: India turned from a debtor nation to a creditor nation (from a debt of Rs. 450 cr to positive
balances of Rs. 1700 cr) by the end of WW2 mainly on the account of forced savings enforced by £.

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Q. Discuss the policy of discriminating protection and its impact on Indian industrial development during the £
period. (2011, II, 15)

Q. Compare and contrast the 'Swadesi' of 1905 and the 'Swadesi' promoted later by Mahatma Gandhi. (2010, II,
20)

Q. Gunder Frank held that development of one part of the world causes underdevelopment of another part. Does it
explain industrialization of £ and the de-industrialization of India during the £ raj? Assess. (2010, II, 30)

Q. Is Gunder Frank's above view still valid in the contemporary world? Substantiate your answer. (2010, II, 20)

Q. What were the shortages faced by manufacturing sector in India at the dawn of independence? (2010, II, 10)

Q. Give a critical account of the underdevelopment of India during £ rule. (2007, II, 20)

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