Chapter 1: OVERVIEW OF COLONIAL ECONOMY During 1600-1800s, 28000 tons of silver and

gold came into India which was equal to 1/5th of the silver production in the world. Gold was
cheaper in China and silver was cheaper in India, so the silver coming to India was
exchanged for gold with China. Opium was grown in India and sold at a high price in China
and the revenue was used to pay for the China’s silk and tea. In 18th century, there was trade
with West Africa and America. According to A.G. Frank, 138 tons of silver was coming to India
yearly. It was in the 17th Century that the European trade started. Indian traders traded
goods like spices with South East Asian countries, etc. Thus, there emerged a triangular
pattern of trade. The arrival of European traders in Asia did not diminish the role of Asian
traders; instead, European traders had to adapt and fit into the existing commercial order.
Contrary to Eurocentrism, there is evidence that Asia, particularly China and India, played
significant roles in international trade. China was famous for porcelain and silk, while India
was renowned for its cotton varieties. As a result, these countries became major recipients of
silver through the "Bullion for goods trade" because they had limited demand for imports.
Indian cotton gained more popularity than Chinese silk due to several advantages: it was
suitable for various climates, held dyes and designs better, was lighter than woolens, and
cheaper than Chinese silk. Before the 17th century, major destinations for Indian cotton
included East Africa, where European traders exchanged it for slaves, and Southeast Asia,
where it was traded for spices. With the arrival of European traders, three new destinations
for Indian cotton emerged in the 17th century. • Europe became a significant market as
Dutch and English traders started bringing cotton back to their homelands instead of
exchanging it in East Africa. • In West Africa, Indian cotton became highly sought after, and
slaves were exchanged for it. Evidence shows that a large portion of British exports to West
Africa in the 18th century were textiles, primarily from India. Indian cotton also played a
crucial role in the French slave trade with West Africa. • Additionally, Indian cotton found its
way to the America through two routes: exports from Northwest Europe to the Caribbean
and other islands, and to Spanish America through Manila over the Pacific. Indian cotton's
widespread distribution included Southeast Asia, West and East Africa, the Americas, the
Middle East, and other regions. Payment for these cotton exports was predominantly made
in silver, gold, and other metals since India had minimal demand for imports. Debates exist
regarding whether China or India received most of the world's silver. Some historians, like
A.G. Frank, argue that China was the "ultimate sink" for silver, even though some of the silver
flowing into India was exchanged for gold, which was cheaper in China than in India.
Contrary to the belief that India mainly served as a sink for silver, the facts and figures tell a
different story. Between 1600 and 1800, around 28,000 tons of silver (almost a fifth of the
world's production) flowed into the Indian subcontinent. Silver also arrived in India from
Manila to South India, and there is evidence of silver being diverted from Chinese flows to
Central Asia and Japanese silver being carried by the Dutch East India Company for sale in
Bengal. Moreover, silver was imported into India for coinage and minting purposes,
particularly during the Mughal rule. Additionally, other metals like copper and gold were also
brought into India for use as currency in smaller transactions. Couriers and bitter almonds,
known as badams, were also imported for the same purpose. These facts challenge the
notion that India solely relied on silver and presents a more complex picture of trade and
currency in the region. The colonial state had a significant impact on the Indian economy,
with trade policies limiting industrial activity and neglecting investments in education and
technical institutions. This led to a dissipation of skilled workforce and hindered the potential
for modern industry in early colonial India. Observations indicate that Indian entrepreneurial
activity was abundant, particularly among traders from Gujarat who had extensive networks
and connections with production houses. They traded with their own capital and lived frugal
lives, showcasing ample entrepreneurial initiative and skill. Capital for investment in new
manufacturing firms was also available from sources such as the British East India Company
and the French. Indian entrepreneurs showed interest in adopting newer methods and
machines, although Europeans played a vital role in transferring modern technical know-how
from Europe to India. There was also an abundance of skilled labor capable of operating and
maintaining imported machines, with Indians eventually taking over these roles from
Europeans and even outperforming them. The British East India Company faced criticism for
deliberate policies aimed at crippling Indian industry. For instance, nominal duties were
applied to power loom products from London, while prohibitory duties were imposed on
hand-wrought fabrics from Behar and Bengal, undermining local production. In contrast,
other countries around the world demonstrated state intervention to support the progress of
local modern industry. This intervention took various forms, including the protection of local
industry, the establishment of institutions for technical knowledge, and the recruitment of
skilled workers from abroad. State (in) action towards local industry in India during colonial
rule had several negative aspects: The Company imposed taxation that favored imported
goods over Indian products, hindering the competitiveness of local industries. Indian
manufacturers faced higher taxes compared to British goods in regions like Australia, Ceylon,
and Cape of Good Hope. The Company showed little interest in equipping Indians with
modern technical knowledge and expertise, unlike earlier practices where kings facilitated
knowledge transfer from Europeans. Education and learning received minimal support from
the Company, contrary to pre -colonial practices, as noted by Lord Minto. Two specific
policies led to the decline of technical knowledge: → The Armaments policy relied heavily on
imported guns, with limited local manufacturing. Only in the late 18th century were brass
guns produced in Bengal on a small scale. → The Railways policy prioritized imported
materials from Britain, neglecting efforts to procure locally made materials Reasons for
British disinterest in developing Indian industry: • The desire to govern with minimal
expenditure led to reluctance in investing in education, industry, and agriculture, considering
them as drains on earnings. • The British aimed to monopolize knowledge and restrict
education for natives, evident in efforts to keep them out of gun-making and surveys. • The
colonial economy prioritized serving the British economy, viewing India as a market for
British manufacturers and a supplier of raw materials. Stimulating the Indian economy was
not a priority. • Consequently, India had an open economy, while Indian goods faced high
taxes abroad, particularly in Britain, despite pleas for fair treatment from both British
nationals and respected Indians. Positive features of colonial rule in India included: • Import
substitution in consumer goods industries occurred after World War I, making India self-
sufficient in major consumer goods industries by 1939. • Surpluses were directed towards
investments, shifting capital from usury and landlordism to industry. • There was
diversification and sophistication in industrial production, with developments in sectors such
as iron and steel, sugar, and paper. • The establishment of railways had a transformative
effect, earning India the nickname "Nation on Wheels." • India successfully reduced its debt
and made payments for wartime purchases, becoming a non -debtor country. • Financial
capital improved, with Indian-owned life insurance companies controlling 75% of the
insurance business by 1947. • The development of technical and scientific manpower
resulted in a small but well-trained skilled labor force. • Internal trade increased, linking
indigenous industries with agriculture, especially during a period of declining international
trade. • Investment under Indian control grew faster than European investment, with
multinational corporations entering India after 1918, although the growth of foreign capital
was slower than Indian capital. Debate on the 19th Century Indian economy: There is a
divergence of views on the factors responsible for the state of Indian economy in the 19th
century. Externalists’ view Internalists’ view It is said that age old industries of India declined
under the commercial policies of East India Company, and agriculture remained the only
Indian industry. No efforts were made to revive/fester the new industries after 1858, so
manufacturers and artisans were in a state of decline and poverty. Others held social factors
and religious conventions prevalent at that time as chief deterrents to industrialism in India.
There was lack of enterprise and weak economic motive. Impact of colonial rule on
Agriculture: • Subdivision of land holdings decreased productivity, and regressive agrarian
structures like the Zamindari system, Ryotwari System, and Rack Renting System hindered
agricultural development. • There was a lack of investment in agriculture, outdated
technology, and a scarcity of modern machinery. Improvements in seeds primarily focused
on non-food cash crops. • Capitalist farming did not develop, and agriculture was affected by
famines, scarcity, and economic depression, reducing savings. • Agricultural surplus did not
benefit the majority but went into the wrong hands, resulting in a drain of capital. •
Agricultural education and investment in infrastructure, such as drainage and desalinization,
were insufficient. Dependence on rainfall was common. • Although more land was cultivated,
there was minimal improvement in yield per acre, leading to a deterioration in per capita
agricultural production and a decline in per capita food grain output. Impact of colonial rule
on Industries: • The occupational structure, national income, and level of urbanization
experienced stagnation, indicating a limited growth of industria lization. • The absence of
capital was notable, with 89.8% of machinery still being imported in 1950. • Modern banking
and insurance systems were underdeveloped, hindering Indian entrepreneurs' ability to
mobilize capital. • The percentage of the workforce in industries declined as women who
were previously employed in the handicraft industry lost their jobs with the advent of the
iron and steel industry. Modern industries did not adequately compensate for the
displacement of traditional handicrafts. • After 1918, large multinational corporations (MNCs)
began to emerge, bringing foreign investments. However, these investments resulted in a
drain from India, with unilateral transfers and minimal capital inflow. • The multiplier effects
of income, employment, capital, technology, and growth were primarily exported back to
developed countries. • Foreign investments focused on sectors catering to the foreign
market rather than India's domestic market. • The development of India was guided towards
the production and export of raw materials and foodstuffs, perpetuating underdevelopment