India under East India Company’s Rule

TRADE POLICIES
With coming of British colonialism in India, the economic policies followed by British
were more concerned about protection and promotion of the economic interests of
their own country rather than development of Indian economy under British rule. The
policies followed by the company rule brought about a fundamental change in the
structure of the Indian economy, transforming India into a supplier of raw materials
and a consumer of finished industrial products from Britain.
There were three broad stages of British Colonialism in India. The economic impact of
British rule in India is also studied under these stages to assess the full meaning of
British rule.
Mercantile development (1757-1813)

•
o The East India Company began to use its political power to
monopolize the trade in India.
o It dictated the terms of trade in its dealings with the traders and
merchants of Bengal.
o The Company imposed inflated prices of goods leading to
adventurous capitalism whereby the wealth was created by the
political clout of the British traders.
o The revenue collected from Bengal was used to finance exports to
England.

Industrial phase (1813-1858)

•
o With development of British industries, India was exploited by its
colonial masters as a market for British goods.
o With coming of the act of 1813, only one-way trade was allowed
by the British, as a result of which, the Indian markets was flooded
with cheap, machine-made imports from newly industrialized
Britain.
o This led to loss of Indian market and foreign market for traders of
the country.
o Now, Indians were forced to export their raw materials to Britain
and import the finished goods.
o They imposed heavy imports duty on the Indian products exported
to England in order to discourage them in the British market.
Financial phase (1860 onwards)

•
o After the British consolidated their position in India they
converted India into a market for British manufacturers while still
being a supplier of foodstuffs and raw materials.
o In the second half of the 19th century, modern machine based
industry started coming up in India.
o With the Introduction of Railways in 1853, and Post and Telegraph
being introduced in year 1853 as well.
o There was a rush of foreign investment in India mainly lured by
high profits and availability of cheap labour, raw materials.
o The Banking System was introduced in form of Avadh Commercial
Bank in year 1881.
o Home grown Industries came into existence in form of Tata Iron
and Steel in 1907.
o Socially, this led to the rise of an industrial capitalist class and a
working class became important feature of this phase.

Effects of British Rule on economic conditions:

• The British rule stunted the growth of Indian enterprise.

• The economic policies of British checked and retarded capital formation
in India.
• The Drain of Wealth financed capital development in Britain.
• Indian agricultural sector became stagnant and deteriorated even when a
large section of Indian populace was dependent on agriculture for
subsistence.
• The British rule in India led the collapse of handicraft industries without
making any significant contribution to development of any modern
industrial base.
• Some efforts by the colonial British regime in developing the Plantations,
mines, jute mills, banking and shipping, mainly promoted a system of
capitalist firms that were managed by foreigners.
• These selfish motives led to further drain of resources from India.

Britain subordinated the Indian economy to its own economy and determined the
basic social trends in India according to her own needs. The result was stagnation of
India’s agriculture and industries, exploitation of its peasants and workers by the
zamindars, landlords, princes, moneylenders, merchants, capitalists and the foreign
government and its officials, and the spread of poverty, disease and semi-starvation.
Administration
In 1764, after the Battle of Buxar, the British became supreme power in Bengal. When the British
took control of Bengal, they tried to establish administration according to their requirements.
However after 1857 British Administrative policies were modified but it never lost sight of its
main objects which were −Company’s profits, to enhance the profitability of its Indian possessions
to Britain and to maintain and strengthen the British hold over India.
Administrative measures British adopted initially to rule India:

1. From 1765 to 1772, in the period of the Dual Government, Indian officials were
allowed to function as before but under the over-all control of the British
Governor and British officials. In 1772, the Company ended the Dual Government
and undertook to administer Bengal directly through its own servants.
2. Continuous wars and mismanagement by the company officials made British
parliament to pass Regulating Act of 1773.

1. Regulating Act, 1773: The government, headed by a Governor General in Bengal

and four Councillors, having the supervisory authority over the presidencies of
Bombay and Madras. The Act recognized the right of Parliament to regulate the
civil, military and revenue affairs of the company’s territories in India
2. Pitt’s India Act, 1784 gave the British Government supreme control over the
Company’s affairs and its administration in India. It established Board of Control.
The Board of Control was to guide and control the work of the Court of Directors
and the Government of India.
3. Charter Act of 1813 Government and the revenues of India continued to be in the
hands of the Company. The Company also continued to appoint its officials in
India.
4. Charter Act of 1833 Government of India was reconstituted on a new model which
gave it in all India character. This Act re-designated the Governor-General of
Bengal as the Governor-General of India. The Governor-General was given
exclusive legislative powers for the whole of British India. It attempted to
introduce a system of open competitions for the selection of civil servants.

Initial Administrative approach changed later on

1. From 1853 onwards changes begun in administrative policies, but major changes
seen after 1857 revolt.
2. Charter Act of 1853 separated, for the first time, the legislative and executive
functions of the Governor-General’s council. It introduced, for the first time, local
representation in the Indian (Central) Legislative Council. It introduced an open
competition system of selection and recruitment of civil servants. The covenanted
civil service was thus thrown open to the Indians also.

1. Government of India Act of 1858 abolished the East India Company, and
transferred the powers of government, territories and revenues to the British
Crown. It ended the system of double government by abolishing the Board of
Control and Court of Directors. It created a new office, Secreta ry of State for
India, vested with complete authority and control over Indian administration.
2. In pursuance of this policy of association, three acts were enacted by the British
Parliament in 1861, 1892 and 1909.
3. Act of 1861 made a beginning of representative institutions by associating
Indians with the law-making process.
 4. Act of 1892 It increased the functions of legislative councils and gave them the
power of discussing the budget5 and addressing questions to the executive.
5. Act of 1909 provided (for the first time) for the association of Indians with the
executive Councils of the Viceroy and Governors. Satyendra Prasad Sinha became
the first Indian to join the Viceroy’s Executive Council. He was appointed as the
law member
6. Government of India Act of 1919 relaxed the central control over the provinces by
demarcating and separating the central and provincial subjects. The central and
provincial legislatures were authorized to make laws on their respective list of
subjects. It introduced, for the first time, bicameralism and direct elections in the
country. It provided for the establishment of a public service commission. It
separated, for the first time, provincial budgets from the Central budget and
authorized the provincial legislatures to enact their budgets.
7. Government of India Act of 1935 introduced ‘provincial autonomy’. The provinces
were allowed to act as autonomous units of administration in their defined
spheres. It provided for the establishment of not only a Federal Public
Service Commission but also a Provincial Public Service Commission and
Joint Public Service Commission.

Factors that led to such change in the approach:

1. 1857 Revolt against British Policies.

2. English Education and interaction between the Indian and the western cultures
helped Indians to know the world affairs, this raised aspirations of the people
which forced British to change in Administrative process.
3. Establishment of Indian National Congress in 1885 forced British to Include
Indians in Administration.

The Revolt of 1857 gave a severe jolt to the British administration in India and made its
reorganization inevitable. Some of the British administrative policies were highly effective which
are even today reflecting in Indian Government administration.

Doctrine of lapse
The Doctrine of Lapse was an annexation policy followed widely by Lord Dalhousie when he was
India’s Governor-General from 1848 to 1856.

• According to this, any princely state under the direct or indirect (as a
vassal) control of the East India Company where the ruler did not have a
legal male heir would be annexed by the company
• As per this, any adopted son of the Indian ruler could not be proclaimed
as heir to the kingdom. This challenged the Indian ruler’s long-held
authority to appoint an heir of their choice.

Subordinate alliance
Wellesley’s policy of subsidiary alliance was an extension of ring fence—which sought to reduce
states to a position of dependence on British Government in India. According to this system,
every ruler in India had to accept to pay a subsidy to the British for the maintenance of British
army. In return, British would protect them from their enemies which gave British enormous
expansion.
French used to provide their troops for the rent purpose to the native Indian state. Dupleix was
the first who lend European troops to the Indian state. Later it was adopted at a large scale by
Lord Wellesley who started it to make sure that no state in India
Key features of Subsidiary Alliance

• The allies of Indian state’s ruler were compelled to accept the permanent
garrison of British Army within their territories and to pay a subsidy for
its maintenance.
• An Indian ruler entering into Subsidiary Alliance with the British had to
dissolve his own armed forces.
• He also had to pay for the British army’s maintenance.
• In return, the British would protect the Indian state against any foreign
attack or internal revolt.
• The British promised non-interference in internal affairs of the Indian
state but this was rarely kept.
• The Indian state could not enter into any alliance with any other foreign
power.
• He could also not employ any other foreign nationals other than
Englishmen in his service. And, if he were employing any, on the signing
of the alliance, he had to terminate them from his service. The idea was
to curb the influence of the French.
• The Indian state could also not enter into any political connection with
another Indian state without British approval.
• The Indian ruler, thus, lost all powers in respect of foreign affairs and the
military.
• He virtually lost all his independence and became a British ‘protectorate’.
• A British Resident was also stationed in the Indian Court.

Impact of policy and British Expansion

• If a ruler failed to make the payment, a portion of his territory would be

taken away and ceded to the British in the name of maintaining the
troops.
o This was the outcome in most cases, as rulers fell into arrears and
a part of their territory was taken.
• The subsidiary system was the Trojan horse tactics in empire building. It
disarmed the Indian states and threw British protectorate over them.
 • The Governor General had proxy in every Indian state that accepted the
subsidiary alliance.
o Thus, it deprived the Indian princes of forming any confederacy
against British.
• It enabled the company to maintain a large standing army at the expense
of Indian princes.
• According to the Wellesley himself, “by the establishment of our
subsidiary forces at Hyderabad and Poona, an efficient army of 22000
men are stationed within the territories or on the frontier of foreign
states, and is paid by foreign subsidies. That army is constantly
maintained in a state of perfect equipment, and is prepared for active
service in any direction at the shortest notice” without any considerable
increase to the permanent military expenses of the Government of
India.”
• The stationing of the company’s troops in the capitals of the Indian
princes gave the English the control of the strategic and key positions in
India without arousing the jealousy of other European nations.
• The subsidiary system helped the company to effectively counteract any
possible French moves in India. The company required the subsidiary ally
to dismiss all Frenchmen from his service.
• The British residents wielded considerable influence in the affairs of the
Indian states. This placed great patronage into the hands of company’s
authorities in India.
• The Company acquired territories in full sovereignty from Indian states
and expanded their dominions in India
• So, we can say that on one hand Subsidiary alliance helped company
to reduce the threat of Napoleon/French and on the other hand
company could maintain a large army on the expenses of Indian states.

The native states, they virtually ceased to exist from the moment they became subsidiary to or
protected by the Company. The conditions under which they were allowed to retain their
apparent independence were at the same time, the conditions of permanent decay, and of an
utter inability of improvement.

Misc.
• With the victory of the British in the Carnatic wars and more importantly
in the Bengal battles began the process of their conquest of India. By
1765 the British had not become the virtual rulers of Bengal, Bihar and
Orissa, but also begun to dictate terms to the Nawabs of both carnatic
 and Awadh. This was a gradual process by the end of which, all parts of
India came under British control.

British conquest of India in stages:-

• The British colonial rule in India is generally divided into three stages:

First stage(1757-1813) represents the mercantile phase

• This ‘mercantilist’ phase was marked by direct plunder and the East India
company’s monopoly trade functioning through the investment of
surplus revenues in the purchase of Indian finished goods for export to
England and Europe.
• During the mercantile phase the aim of all activity was to accumulate
wealth. In order to pursue a favourable trade, the British company
started aggressive policies in India.
• The government passed the Regulating Act and the Pitt’s India Act to
gain more and the direct control over the affairs of the company. The
company officials transferred their fortunes acquired in India to England.
The financial bleeding of India started with the British gaining hegemony
over Indian territories.
• New revenue settlements were imposed upon the agrarian structure.
• They fought several wars, crushed many princely States and brought
them under the colonial authority. Soon the mercantile phase came to an
end.

Second stage(1813-1860) represents the free trade phase

• By the dawn of the 19th century, the British became an industrial power
following Industrial Revolution in England. It was in need of raw material
to feed its industries. The emerging capitalist class found the Company a
stumbling block for its market.
• During this period, India was converted rapidly into a market for British
textiles and a great source for raw materials. Traditional handicrafts were
thrown out of gear
• The Company’s monopoly in India was bitterly attacked by the British
industrial community. Thus, the need for raw material and markets for
the British manufactured goods resulted in the formulation of free trade
policy towards India.
 • The special feature of this policy was that it was a one way traffic
wherein British goods entered India virtually free while Indian products
entering Britain faced high tariffs.
• The protective policy towards British trade was thoroughly guarded,
leaving India-made products to face stiff competition.
• Revenue and expenditure policies of the Britishers were also exploitative
in nature. Huge expenditure (expenditure on army, pensions and salaries
of Englishmen, etc.) incurred by the British imperial power had been
borne by Indians by paying high doses of taxes.

Third stage(1860 onwards ) represents the finance capital phase

• During this phase, finance-imperialism began to entrench itself through

the managing agency firms, export-import firms, exchange banks, and
some export of capital.
• Britain, of course, kept India as her most important colony where British
capital could hope to maintain a haven. For her survival, Britain decided
to make massive investments in various fields (rail, road, postal system,
irrigation, European banking system, and a limited field of education, etc.)
in India by plundering Indian capital. It is said that ‘railway construction’
laid the foundation for a new stage of colonial exploitation
• With the opening up of the country, private capitalist investment from
Britain came to India. But unfortunately, such British investment was not
meant for India’s industrial development.
• The basic motive behind such investment was the commercial
penetration of India, its exploitation as a source of raw materials and
markets for British manufactures.
• This was, in fact, one of the principal contradictions of imperialism -
colonialism in India.

• Britain’s supremacy in the world economy for nearly 200 years lay in the
utter neglect and plunder of her most important colony India. India’s
economic life was redirected towards servicing the interests of British
imperial power. Internal needs of the country were of no concern to the
lone colonizer of the world.

Agricultural policies
EIC used every strategy in arsenal to colonize India. They participated in internal feuds, did
treaties and used conspirators against their own ruler.
Colonise countryside:

• Get Diwani rights of 100 million acres of land after battle of Buxar.
• Decreased power of tribals by making forest as state property and
monitoring their movement.
• More number of police stations and control over village headmen &
Zamindars
• De industrialization by destroying Indian export & dumping Indian market
with cheap british goods led to artisans movement to village. British
through revenue & crop models took full control over them.

Revenue resources:

• Main source was land from which they collected revenue based on
Permanent settlement, Ryotwari & Mahalwari system.
• They realized that they could use land for raw materials desired in their
own country. So, they forced farmers to grow cash crops like Tea, coffee,
Indigo etc.
• Through Subsidiary alliance system, Drain of wealth by direct or indirect
ways.

Redefine rights of people:

• Decreased right of tribals over forest. Thus most of them became labours
in tea plantation or mining.
• Farmers no more have the right to grow according to choice.
• Right of Village headmen was disturbed by forcing them to sign in place
of ryots on what to grow in field.

Crops:

• British realized that they can use Indian field for raw material desired at
home. So they forced farmers to grow crops like tea, coffee, Indigo,
cotton etc. It led to multi-fold problems:
1)Farmers don’t have the right to grow what they wanted.
2)Farmers used to grow grains for self consumption but british
interference created problem. It was one of the reason that famine of
bengal took place.

Indigo was one such crop used by British. Indigo requires lots of water, so farmers cannot
cultivate other crops like rice after its cultivation. This led to Blue rebellion where peasants
refused to cultivate it followed by Indigo commission in Bengal by Govt.
PERMANENT SETTLEMENT:
Permanent settlement system was introduced by Lord Cornwallis to ensure predictable and
steady flow of revenue and improve revenue base by encouraging landlords to improve land
productivity.But result was not as intended by Britishers.
Under settlement ,They could retain it for long duration provided they paid rental. Since rental
was fixed but not tax that could be taken from tenants, they could resort to rack renting and
extract maximum for their pocket. Instead of improving land productivity, they exploited farmers
by arbitrarily keeping high taxes.
They could easily live lavishly under existing system. Consequently big landlords lived luxuriously
in cities and gave their zamindari rights to minor landlords. This led to sub-infeudation whereby
there were as many as 70 intermediaries between
British and peasants.
This led to large scale deprivation of peasants and revenue loss of Britishers. Consequently
Mahalwari and Ryotwari was introduced in rest of India. Though peasants were exploited in these
systems also but absentee landlordism was not found.
Permanent settlement was introduced in UP, Bihar, West Bengal and Odisha which happens to be
among poorest states in India.

Famine policy
During the 18th and 19th centuries, the people of India were ravaged by a series of cataclysmic
famines, precipitated less by failures of nature and more by colonial policies, such as of rack-
renting, both legal and illegal, neglect of agriculture, “free-trade” policies and additional levies for
wars. The famine codes of British had main objective to save lives at minimal cost to the colonial
exchequer. There were 31 famines in 120 years of British Raj, the last one killed 4 million people
in 1943.
Famines during pre-British era:
Famine in Indian sub-continent is a chronicle feature. Agriculture in India is heavily dependent on
a suitable climate. A summer monsoon is a must for the irrigation of crops. Lack of rainfall and
droughts had lead to several famines in India between 11th and 17th centuries severely.
Draughts cause extreme scarcity of water and thus results in crop failure. On the other hand,
floods and earthquakes can destroy the crops or food storage places. These all result in food
scarcity and eventually famines. E.g.: Deccan Famine of 1630
Famines during colonial era:
India was hit by recurrent famine from 1760 AD to till 1943 AD. As per British sources, there
were more than 85 million Indians died in these famines which were in reality genocides done by
the British Raj. E.g.: Doji Bara famine or Skull famine of 1788–94 killed around 11 million people.
Bengal famine of 1943 killed more than 3 million people.
Apathy of British rulers was evident in their policies:

• The famines were a product both of uneven rainfall and British economic
and administrative policies.
• Colonial policies:
 o Colonial policies implicated include rack-renting, levies for war,
free trade policies, the expansion of export agriculture, and
neglect of agricultural investment.
o During the Bengal famine of 1770, East India Company raised
taxes disastrously and exacerbated it, even if the famine was not
caused by the British colonial government.
o Indian exports of opium, rice, wheat, indigo, jute, and cotton were
a key component of the economy of the British empire, generating
vital foreign currency, primarily from China, and stabilising low
prices in the British grain market.
o Policy lapses such as prioritising distribution of vital supplies to
the military, civil services and others as well as stopping rice
imports
• Policy of laissez faire:
o The government’s policy of laissez faire in the trade of grain. For
example, two of the worst famine-afflicted areas in the Madras
Presidency, the districts of Ganjam and Vizagapatam, continued to
export grains throughout the famine.
o Export crops displaced millions of acres that could have been used
for domestic subsistence, and increased the vulnerability of
Indians to food crises.
o Others dispute that exports were a major cause of the famine,
pointing out that trade did have a stabilising influence on India’s
food consumption, albeit a small one.
o The large-scale loss of life due to the series of famines between
1860 and 1877 was the cause of political controversy.
• Attitude of Viceroys:
o Curzon stated that such philanthropy would be criticised, but not
doing so would be a crime. He also cut back rations that he
characterised as “dangerously high,” and stiffened relief eligibility
by reinstating the Temple tests.[79] Between 1.25 and 10 million
people died in the famine.
• Infrastructure:
o The failure to provide food to the millions who were hungry during
the famines of the 1870s has been blamed both on the absence of
adequate rail infrastructure and the incorporation of grain into
the world market through rail and telegraph.
• Famine codes:
 o British Codes were explicit in casting a duty on public officials to
spend the minimum that was necessary, only to prevent the loss of
lives, and nothing beyond that.
o The Famine Codes of the past recognised that non-farm rural poor
persons, like artisans and weavers, may be very hard hit by famine,
but did little to address their food needs, although they were not
equipped physically and culturally to participate in the kind of
manual labour that is required in public relief works.
o Those who are most vulnerable in times of food scarcity are old
people, single women, disabled people and children. Colonial
Codes contained niggardly provisions for them of “gratuitous
relief”

The above conditions were worsened by rapidly growing population, increasing household debt,
stagnant agricultural productivity, increased social stratification, and alienation of the peasant
class from their landholdings. The natural disasters like cyclone, floods and droughts wreaked
havoc at times.
During episodes of food scarcity caused by drought and failure of the rains of the kind that looms
over large parts of India today, district authorities in India are still substantially guided by updated
versions of Famine Codes that were initially developed by colonial administrators.
BENGAL FAMINE OF 1943:
The British had a ruthless economic agenda when it came to operating in India and that did not
include empathy for native citizens. Under the British Raj, India suffered countless famines. But
the worst hit was Bengal. The first of these was in 1770, followed by severe ones in 1783, 1866,
1873, 1892, 1897 and lastly 1943-44. Previously, when famines had hit the country, indigenous
rulers were quick with useful responses to avert major disasters. After the advent of British rule,
most of the famines were a consequence of monsoonal delays along with the exploitation of the
country’s natural resources by the British for their own financial gain. Yet they did little to
acknowledge the havoc these actions wrought.
Reasons of famine:

• Under the Mughal rule, peasants were required to pay a tribute of 10 -15
percent of their cash harvest. This ensured a comfortable treasury for the
rulers and a wide net of safety for the peasants in case the weather did
not hold for future harvests. In 1765, the Treaty of Allahabad was signed
and the East India Company took over the task of collecting the tributes
from the then Mughal emperor Shah Alam II. Overnight the tributes, the
British insisted on calling them tributes and not taxes for reasons of
suppressing rebellion, increased to 50 percent. The peasants were not
even aware that the money had changed hands. They paid, still believing
that it went to the Emperor.
 • Partial failure of crops was quite a regular occurrence in the Indian
peasant’s life. That is why the surplus stock, which remained after paying
the tributes, was so important to their livelihood. But with the increased
taxation, this surplus deteriorated rapidly.
• Underlying causes of the famine included inefficient agricultural
practices, dense population, and de-peasantisation through debt bondage
and land grabbing.
• The colonial rulers continued to ignore any warnings that came their way
regarding the famine.
• Proximate causes of famine comprise localised natural disasters (a
cyclone, storm surges and flooding, and rice crop disease) combined with
the consequences of war such as:
• Initial, general war-time inflation of both demand-pull and monetary
origin
• Loss of rice imports due to the Japanese occupation of Burma (modern
Myanmar)
• Near-total disruption of Bengal’s market supplies and transport systems
by the preemptive, defensive scorched earth tactics of the Raj (the
“denial policies” for rice and boats);
• Massive inflation brought on by repeated policy failures, war
profiteering, speculation, and perhaps hoarding.
• The government prioritised military and defense needs over those of the
rural poor, allocating medical care and food immensely in the favour of
the military, labourers in military industries, and civil servants.

Consequences of famine:

• The two waves – starvation and disease – also interacted and amplified
one another, increasing the excess mortality. Widespread starvation and
malnutrition first compromised immune systems, and reduced resistance
to disease led to death by opportunistic infections.
• The social disruption and dismal conditions caused by a cascading
breakdown of social systems brought mass migration, overcrowding, poor
sanitation, poor water quality and waste disposal, increased vermin, and
unburied dead. All of these factors are closely associated with the
increased spread of infectious disease.
• Men sold their small farms and left home to look for work or to join the
army, and women and children became homeless migrants, often
 travelling to Calcutta or another large city in search of organised relief
leading to huge migration.
• One of the classic symptoms of famine is that it tends to intensify the
exploitation of women; sales of women and girls, for example, tend to
increase. Even before the famine, sexual exploitation of poor, rural,
lower-caste and tribal women by the jotedars had at times been socially
sanctioned, and during the crisis, women turned to prostitution in great
numbers.
• Another severe hardship of the crisis – the “cloth famine” – left nearly
the entire population of the immiserated poor in Bengal naked or clothed
in scraps through the winter. The British military consumed nearly all the
textiles produced in India by purchasing Indian-made boots, parachutes,
uniforms, blankets, and other goods at steep discount rates.
• The famines lead to widespread unsanitary conditions, catastrophic
hygiene standards, and the spread of disease. The “cloth famine” saw a
scarcity of clean clothing, or any clothing at all. Disposal of corpses in
rivers and other water supplies contaminated drinking water. Large scale
migration led to the abandonment of the utensils and facilities necessary
for washing clothes, preparing food, and taking care of other necessities
of life.

All this clearly indicate that we must not forget our past in this era of abundance of almost
everything. There must be self-restrain at indivisual level to use food and other resources
judiciously in order to make our own choice morally right as well.