Economic

Condition
During
British
Modern Indian History Rule
Module IX – Modern History :Economic Impact of British Rule
1983

The economic policies followed by the British led to the

transformation of India’ s economy into a colonial economy. They
disrupted the traditional structure of the Indian economy. Explain
how this happened with special reference to agriculture rural
employment and development of our industries.

Module IX – Modern History :Economic Impact of British Rule

Economic History of Modern India
❑ It helps in understanding the present day economic problems in
India

❑ 3 stages of Capitalism in India

❑ Drain of wealth

❑ Deindustrialization

❑ Commercialization of Agriculture

Module IX – Modern History :Economic Impact of British Rule

 Three Stages of Capitalism
❑ Capitalism-System in which the means of production is in the hands of
an individual.

❑ 3 stages of Capitalism in India : Given by R. Palme Dutt (the Marxist

Historian)

❑ Mercantile Phase of Capitalism (1757-1813):

❖ Started with the establishment of British dual rule in 1757.
❖ Also known as the Period of Monopoly Trade & Direct Appropriation.

Module IX – Modern History :Economic Impact of British Rule

Objectives:
❖ To acquire monopoly of trade in India (against both European &
Indian merchants)

Module IX – Modern History :Economic Impact of British Rule

Strategy:
❖ By eliminating the rival European powers as well as native
rule present in India.

❖ Securing & strengthening trade rights through charters & acts

by the British Government.

Module IX – Modern History :Economic Impact of British Rule

Characteristic Feature of this Period
❖ No basic changes were introduced in administration, judicial
system, transport & communication, etc.

❖ No major changes made in education or intellectual field,

culture or social organisation.

❖ Large scale drain of wealth from India which constituted 2-3 %

of Britain’s national income at the time.(This wealth helped in
industrial revolution in England)

Module IX – Modern History :Economic Impact of British Rule

Continued…
❖ No large scale import of British manufactures into India,
rather, an increase in export of Indian textiles, etc.

❖ However, weavers were ruined at this stage by the

Company’s monopoly & exploitation.

Module IX – Modern History :Economic Impact of British Rule

East India Company Act 1793/ Charter Act of 1793
q Act of the Parliament of Great Britain which renewed the charter issued to the EIC,
& continued the Company's rule in India.

q The Act made only fairly minimal changes to either the system of government in
India or British oversight of the Company's activities.

q Most importantly, the Company's trade monopoly was continued for a further 20
years.

q Salaries for the staff & paid members of the Board of Control were also now
charged to the Company.

q The Home Government members were to be paid out of Indian revenues.

q EIC was empowered to grant licences to both individuals & Company employees to
trade in India (known as the "privilege" or "country" trade), which paved the way
for shipments of opium to China.

Module IX – Modern History :Economic Impact of British Rule

Charter Act, 1813/ East India Company Act 1813

q In England, the business interests were pressing for an end to the Company's
monopoly over trade in India because of a spirit of laissez faire & the continental
system by Napoleon by which the European ports were closed to Britain.

q The 1813 Act sought to redress these grievances.

q Act of the Parliament which renewed the charter issued to the Company &
continued the Company's rule in India.

Module IX – Modern History :Economic Impact of British Rule

Charter Act, 1813/ East India Company Act 1813

q Company's monopoly over Indian trade terminated except for the tea trade & the
trade with China; Indian trade thrown open to all the British subjects.

q The Act expressly asserted the Crown's sovereignty over British India.

q The Company's shareholders were given a 10.5 % dividend on the revenue of

India.

q The Company was to retain the possession of territories & the revenue for 20 years
more, without prejudice to the sovereignty of the Crown. (Thus, the constitutional
position of the British territories in India was defined explicitly for the first time.)

Module IX – Modern History :Economic Impact of British Rule

2019
Consider the following statements about 'the Charter Act of 1813’:

1. It ended the trade monopoly of the East India Company in India except
for trade in tea and trade with China.

2. It asserted the sovereignty of the British Crown over the Indian territories
held by the Company.

3. The revenues of India were now controlled by the British Parliament.

Which of the statements given above are correct?

a) 1 and 2 only
b) 2 and 3 only
c) 1 and 3 only
d) 1, 2 and 3
Module IX – Modern History :Economic Impact of British Rule
Industrial phase of Capitalism (1813-1860)
Also termed as Colonialism of Free Trade.

❑ Emergence of New Capitalist Class:

❖ Industrial revolution led to the birth of industrial capitalism.

❖ The newly emerging industrial capitalists began to criticize the

East India Company & its exploitation.

❖ Demanded that colonial administration & policy in India should

now serve British capitalist interests.

Module IX – Modern History :Economic Impact of British Rule

Changes in Approach
❖ Setting up of new politico-administrative approach with an
objective of fulfilment of free trade.

Module IX – Modern History :Economic Impact of British Rule

Dominant Features of this Period
❖ India’s colonial economy was integrated with the British &
world capitalist economy with the introduction of free trade.

❖ All import duties in India were either totally removed or

drastically reduced to nominal rates.

❖ Government gave active State help to British capitalists to

develop tea, coffee & indigo plantations, trade, transport,
mining & modern industries in India.
Module IX – Modern History :Economic Impact of British Rule
Continued…
❖ To transform traditional agrarian structure into a capitalist one,
Ryotwari system were introduced.
❖ Administration was made more comprehensive to make the
transportation of British goods & agricultural products to & fro from
the interior & remotest parts.
❖ Modern education was introduced to provide cheap manpower to the
vastly expanded administration.
❖ The taxation & the burden on peasant rose sharply due to economic
transformation & costly administration

Module IX – Modern History :Economic Impact of British Rule

Charter Act, 1833 /The Saint Helena Act 1833/
The Government of India Act 1833

q As this Act was also intended to provide for an extension of the royal charter
granted to the EIC, it is also called the Charter Act of 1833.

q This Act extended the charter by 20 years.

q The Company lost its monopoly on trade with China & other parts of the Far East.

Module IX – Modern History :Economic Impact of British Rule

Charter Act, 1853
q Charter Act 1853 was passed in the British Parliament to renew the EIC’s charter.

q Last of the Charter Acts.

q Unlike the previous charter acts which renewed the charter for 20 years; this act
did not mention the time period for which the company charter was being renewed.

q Extended the company’s rule for an indefinite period unlike the previous charter
acts.

Module IX – Modern History :Economic Impact of British Rule

Financial Phase of Capitalism (1860-1947)

❖ Often described as the Era of Foreign Investments &

International Competition for Colonies.

Module IX – Modern History :Economic Impact of British Rule

Changes in the World Economy During this Period

❖ Britain’s industrial supremacy was challenged by several

countries of Europe, the United States & Japan.

❖ Application of scientific knowledge to industry increased the pace

of industrialization sharply. For instance, use of petroleum as fuel
for the internal combustion engine & the use of electricity for
industrial purposes.

❖ International transport unified the world economy.

Module IX – Modern History :Economic Impact of British Rule

Change in Strategy:
❖ Britain made strenuous efforts to consolidate its control over
India.

❖ Liberal imperialist policies got replaced with reactionary

imperialist policies, for example, policies which were reflected
in the viceroyalties of Lytton, Dufferin, Lansdowne & Curzon.
❖ Strengthening of colonial rule over India was meant to keep
out the rivals as well as to attract British capital to India &
provide it security.

Module IX – Modern History :Economic Impact of British Rule

Objective:
❖ Declared as permanent ‘trusteeship’ over the Indians. The
Indians were declared to be permanently immature—a ‘child’
people—needing British control & trusteeship.

❖ British thus tried to justify their rule over Indians for centuries to
come—all in the name of civilizing a barbaric people - “the White
Man’s burden”.

Module IX – Modern History :Economic Impact of British Rule

Outcome:
❖ A very large amount of British capital got invested in railways,
loans (to the GOI), trade & , to a lesser extent, in plantations,
coal mining, jute mills, shipping & banking in India.

❖ The kind of revolution which occurred in England never took

off in India i.e. partial industrialization took place in India.

❖ A large number of cottage industries were ruined by the

colonial system.
Module IX – Modern History :Economic Impact of British Rule
Continued…
❖ These industries were not replaced because the capitalists feared
that if the industry in India developed, the parallel industry in Britain
would be forced to shut down.

❖ As a result, only few select capitalist were allowed to establish

the industries & were also not encouraged by the
Government.

Module IX – Modern History :Economic Impact of British Rule

 Drain of Wealth…
❑ 1st man to write about the drain of wealth was Dadabhai Naoroji.
❑ He wrote about it in a paper called ‘The English debt to India’.
❑ He also wrote a book ‘Poverty & un-British rule in India’.
❑ Other people who wrote were:
❖ Govind Ranade
❖ R.C. Dutt made drain of wealth the subject of his ‘The
Economic History of India’.
❖ R.P. Dutt

Module IX – Modern History :Economic Impact of British Rule

 Drain of Wealth…
❖ Dinshah Wacha
❖ S.N. Banerjee
❖ Prithwish Chandra Ray
❖ G Subramania Iyer supported the cause of India's freedom
& used his newspaper ‘The Hindu’ to protest British
Imperialism.
❖ Gopal Krishna Gokhale,
❖ GV Joshi
❖ Bholanath Chandra
Module IX – Modern History :Economic Impact of British Rule
What do you understand about ‘Drain of wealth’ during British rule?
Examine its effects on Indian economy. [UPSC 1997]

What is meant by ‘Un - British’ rule in India? How did the Indian
Nationalists react against it? Evaluate the role of Dadabhai Naoroji
in exposing the evils of British rule in India. [UPSC 1994]

Module IX – Modern History :Economic Impact of British Rule

1998

How did economic nationalism mirror the work of the early

Nationalist leadership in India?

Module IX – Modern History :Economic Impact of British Rule

2015
Who of the following was/were economic critic/critics of
colonialism in India?

1. Dadabhai Naoroji

2. G. Subramania Iyer

3. R.C. Dutt
Select the correct answer using the code given below:
(a) 1 only
(b) 1 and 2 only
(c) 2 and 3 only
(d) 1, 2 and 3

Module IX – Modern History :Economic Impact of British Rule

2008
Who among the following used the phrase ‘Un-British’ to criticise the
English colonial control of India?
a) Anand Mohan Bose

b) Badruddin Tayyabji

c) Dadabhai Naoroji

d) Pherozshah Mehta

Module IX – Modern History :Economic Impact of British Rule

Channels of Drain of Wealth
❖ Bribes taken by Robert Clive from the Nawabs of Bengal.

❖ Interest paid to English companies who invested in India.

❖ The English government in India borrowed money from

English capitalists & they paid the interest from India’s
exchequer

Module IX – Modern History :Economic Impact of British Rule

Home charges:
❖ The salaries of Secretary of State

❖ Maintenance of the army & funds for waging wars even

outside India
❖ Other expenses related to administration.

❖ Profits earned by British capitalists through illegal channels

❖ They used to pay less than the market value while purchasing
Indian goods

❖ Support the India office in London.

❖ Salaries & pensions of British personnel engaged in India.

Module IX – Modern History :Economic Impact of British Rule

2011
With reference to the period of colonial rule in India, "Home
Charges" formed an important part of drain of wealth from India.
Which of the following funds constituted "Home Charges" ?
1. Funds used to support the India office in London.
2. Funds used to pay salaries and pensions of British
personnel engaged in India.
3. Funds used for waging wars outside India by the British.

Select the correct answer using the code given below:

(a) 1 only
(b) 1 and 2 only
(c) 2 and 3 only
(d) 1, 2, and 3

Module IX – Modern History :Economic Impact of British Rule

Explanation
❑ Reproducing a paragraph from the Page 149 of the Economic History
of India by RC Dutt: " The Indian Tribute whether weighted in the
scales of justice or viewed in the light of our interest, will be found to
be at variance with humanity, with the commonsense and with the
received maxims of economical science.

❑ It would be true wisdom then to provide for the future payment of

such of the Home Charges of the Indian Government as really from
the tribute out of Indian Exchequer.

Module IX – Modern History :Economic Impact of British Rule

Continued…
❑ These charges would be probably found to be:

❖ the dividends on East India Stock,

❖ interest in Home debt, the salaries of the officers,

❑ furlough & retired pay to members of the Indian Military &

Civil Services when at Home,

❑ Charges of all descriptions paid in this country connected with

the British troops serving in India &

❑ portion of the cost of transporting the British troops to & from

India".
Module IX – Modern History :Economic Impact of British Rule
Impact of Drain of Wealth
❑ The drain of wealth became a big issue in the Congress session
that followed 1896.
❑ Dadabhai wrote that it was the main reason behind the poverty of
the nation
❑ It checked & retarded capital formation in India while the same
portion of wealth accelerated the growth of British economy.

❑ British claimed that there was no drain of wealth but they were
providing services like roads, railways, health, education etc.

Module IX – Modern History :Economic Impact of British Rule

Continued…
❑ Factors that led to deindustrialization
❖ Industrial revolution in England
❖ Requirement of raw materials from India
❖ Markets in India
❖ High import tax on Indian goods manufactured
❖ The English goods were much cheaper than the Indian goods
& hence penetrated easily into the Indian markets
❖ The English traders started buying most of the raw material at
a relative higher price
Module IX – Modern History :Economic Impact of British Rule
Continued…
❑ Hence the Indian traders were facing shortage of raw material &
since they had to pay a higher price of raw material, their cost of
production increased

Module IX – Modern History :Economic Impact of British Rule

Discriminatory law
❑ Import duty on Indian goods in England was 200% to 400%
while for the English to sell their goods in India, it was just 2% to
10%.

❑ Extinction of ruling class, & Indian ruling families by the British

❑ These ruling classes used to buy a lot of Indian products. But now
that they had been destroyed, there were no consumers for the
Indian products.

❑ Now British were the ruling class, they had different preference &
requirements which led to the downfall of Indian industries.

Module IX – Modern History :Economic Impact of British Rule

Lack of Financial & Technical support
❑ There were no banks or co-operative societies in India.

❑ On the other hand in London alone, there were more than 600
banks at the turn of 17th & 18th century.

❑ This shows the financial aid which the companies in England were
getting while the Indian traders were not given these facilities by
both Indian rulers & English rulers .

Module IX – Modern History :Economic Impact of British Rule

Continued…
❑ No technological progress made by Indians.

❑ There was no sense of entrepreneurship.

❑ Indian traders did not search for new markets after losing a big
market in the west

Module IX – Modern History :Economic Impact of British Rule

Discrimination in Freight Rates
❑ Indian goods were charged higher than the English goods for
transportation through railways.

❑ It was prevalent everywhere, not only in railways.

Module IX – Modern History :Economic Impact of British Rule

Impact of Deindustrialization

❑ Indian economy, which was a balanced economy earlier, became

a purely agricultural based economy.

❑ Large scale unemployment.

❑ The small cottage industries which were destroyed were not

replaced which led to severe unemployment.

Module IX – Modern History :Economic Impact of British Rule

Continued…
❑ Industries were established only in few places like Bombay,
Ahmedabad etc. due to pressure from certain Indian traders.

❑ Most of the Indian traders went back to agriculture, leading to

fragmentation of land holding size.

❑ This resulted in stagnation in agricultural production & disguised

unemployment.

Module IX – Modern History :Economic Impact of British Rule

Loss of Craft Industries

❑ India was very famous for crafts like brass work, Malmal of
Dhaka, etc. , but on establishment of industrial products from
England, these craft industries lost their markets which ultimately
resulted in loss of culture & history.

Module IX – Modern History :Economic Impact of British Rule

 Chintz
• By the early 18th century, worried by the popularity of Indian
textiles, wool & silk makers in England began protesting against
the import of Indian cotton textiles.

• 1720:British government enacted a legislation banning the use of

printed cotton textiles– chintz – in England. This Act was known
as the Calico Act.

• Printed design on fine cloth (chintz) produced in Masulipatnam

during the 19th century.

• This is a fine example of the type of chintz produced for export to

Iran & Europe.
Module IX – Modern History :Economic Impact of British Rule
 Calico
• European traders first encountered fine cotton cloth from India
carried by Arab merchants in Mosul in present-day Iraq.

• So they began referring to all finely woven textiles as “muslin” –

a word that acquired wide currency.

• When the Portuguese first came in search of spices they landed in

Calicut.

• The cotton textiles which they took back to Europe, along with
the spices, came to be called “calico” (derived from Calicut), &
subsequently calico became the general name for all cotton
textiles.
Module IX – Modern History :Economic Impact of British Rule
Development of Modern Industry
❑ Only in the 2nd half of the 19th century modern machine-based
industries came up in India.

❖ 1st cotton textile mill was set up in 1853 in Bombay by Cowasjee

Nanabhoy

❖ The first jute mill came up in 1855 in Rishra.

❑ But most of modern industries were foreign-owned.

❑ Indian-owned industries came up in cotton textiles & jute in the 19th

century & in sugar, cement etc. in the 20th century.
Module IX – Modern History :Economic Impact of British Rule
Reasons for rush of foreign capital
❑ Prospects of high profits,

❑ Availability of cheap labor,

❑ Cheap & readily available raw material,
❑ Ready market in India & the neighbors,
❑ Diminishing avenues for investments at home,
❑ Willingness of the administration to provide all help,

❑ Ready markets abroad for some Indian exports such as tea, jute &
manganese.
Module IX – Modern History :Economic Impact of British Rule
Continued…
❑ Indian-owned industries suffered from many handicaps:

❑ Credit problems,

❑ No tariff protection by Government,

❑ Unequal competition from foreign companies,

❑ Stiff opposition from British capitalist interests who were backed by

financial & technical infrastructure at home.
Module IX – Modern History :Economic Impact of British Rule
Continued…
❑ The colonial factor also caused certain structural & institutional changes.
❑ The industrial development was lopsided —core & heavy industries &
power generation were neglected & some regions were favored more
than the others causing regional disparities.
❑ These regional disparities hampered the process of nation building.
❑ Absence of technical education, the industry lacked sufficient technical
manpower.

❑ Socially, the rise of an industrial capitalist class & the working class was
an important feature of this phase.

Module IX – Modern History :Economic Impact of British Rule

Indian Factory Act, 1881

q A committee was appointed in 1875 to inquire into the conditions of factory work in
the country.

q This committee had favoured some kind of legal restrictions in the form of factory
laws.

q Act, dealt primarily with the problem of child labor (between 7 & 12 years of age).

Module IX – Modern History :Economic Impact of British Rule

Indian Factory Act, 1881

q Its significant provisions were:

v employment of children under 7 years of age prohibited,

v working hours restricted to 9 hours per day for children,

v children to get 4 holidays in a month,

v hazardous machinery to be properly fenced off.

Module IX – Modern History :Economic Impact of British Rule

2017
Consider the following statements :

1. The Factories Act, 1881 was passed with a view to fix the wages of industrial
workers and to allow the workers to form trade unions.

2. N.M. Lokhande was a pioneer in organizing the labour movement in British India.

Which of the above statements is/are correct ?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Answer b

Module IX – Modern History :Economic Impact of British Rule

The Indian Factory Act, 1891

q Following the previous act , a Factory Commission was appointed in 1885.

q Another Factories Act in 1891

Module IX – Modern History :Economic Impact of British Rule

The Indian Factory Act, 1891
q Increased the minimum age (from 7 to 9 years) & the maximum (from 12 to 14 years) for
children
q reduced maximum working hours for children to 7 hours a day,

q fixed maximum working hours for women at 11 hours per day with an one &-a-half hour
interval (working hours for men were left unregulated),

q Provided weekly holiday for all.

q Act made the requirements for fencing machinery more stringent.

q Prohibition on employers to employ women within 4 weeks after confinement;

q This was an answer of the Government to the pathetic conditions of the workers in the factory,
wherein, only when a labourer exhausted, new labourer was to take his / her place.

q Royal Commission on Labor was appointed in 1892

Module IX – Modern History :Economic Impact of British Rule

Continued
q But these laws did not apply to British-owned tea & coffee plantations
where the labour was exploited ruthlessly & treated like slaves.

q The Government helped these planters by passing laws such as those

which made it virtually impossible for a laborer to refuse to work once
a contract was entered into.

q A breach of contract was a criminal offence, with a planter having the

right to get the defaulting laborer arrested.

q More labour laws were passed under nationalist pressures in the 20th
century but the overall working conditions remained deplorable as
ever.

Module IX – Modern History :Economic Impact of British Rule

Trade Disputes Act of 1929

q The principal object of the Act was to provide a conciliation

machinery to bring about peaceful settlement of industrial
disputes.

q Act authorized the central & state governments to establish a

board of conciliation or the court of inquiry to investigate into &
settle industrial disputes. These tribunals were set up on ad hoc
basis.

q Act prohibited strikes & lock outs in public utility services without
prior notice. Such strikes were illegal & punishable under the Act.

Module IX – Modern History :Economic Impact of British Rule

Defects
q Decisions passed by the Board of Conciliation or the Court of Inquiry were not
binding on the parties. This defect was overcome during the 2nd World War under
Rule 81A of the Defence of India Rules.
q This rule empowered the Central Government to refer industrial disputes
compulsorily to adjudicators & to enforce their awards.
q The Industrial Disputes Act, 1947 permanently embodies similar provisions.
q The conciliation could be set in process only when both the parties agreed. It was
voluntary.
q Act did not provide for a permanent machinery for dispute settlement.

q Experience of the working of the Act revealed that it was inadequate to maintain
industrial peace.
q There was a need for a fresh legislation. The Act had already been amended
several times.
q Thus, the Industrial Disputes Act, 1948, was passed which repealed & replaced the
Act.

Module IX – Modern History :Economic Impact of British Rule

2017
The Trade Disputes Act of 1929 provided for :

(a) The participation of workers in the management of

industries.

(b) Arbitrary powers to the management to quell industrial

disputes.

(c) An intervention by the British Court in the event of a trade

dispute.

(d) A system of tribunals and a ban on strikes.

Answer d Module IX – Modern History :Economic Impact of British Rule
2017

Examine how the decline of traditional artisanal industry in colonial

India crippled the rural economy. (250 words)

Module IX – Modern History :Economic Impact of British Rule

2014

Examine critically the various facets of economic policies of the

British in India from mid 18th century till independence.

Module IX – Modern History :Economic Impact of British Rule