Economic Consequences of British Rule

Economic Consequences of British Rule:

The Indian Economy experienced far-reaching changes during the British period which transformed it into a colonial, semi-feudal, lopsided, stagnant, and backward economy. The plant and equipment worn out during the Second World War were further damaged in the Partition disturbances. Independent India inherited grave economic problems from her colonial past.

Colonial Economy:

The colonial character of the economy expressed itself, firstly, in an unequal pattern of trade with Britain and other industrialized countries. The country had become a vast source of raw materials and a market for manufacturers. A few industrial products, mostly jute textiles, that figured among its exports, involved little more than simple processing of agricultural produce. Likewise, a few primary products such as foodgrains, raw cotton, and raw jute which have appeared among her imports were a consequence of (i) loss of rice-surplus Burma from 1 April 1937, and wheat-and-cotton-surplus West Punjab and Sindh and rice-surplus East Bengal from 15 August 1947, and (ii) the very slow growth of India’s predominantly semi-feudal agriculture in comparisons with the rise in population in the preceding few decades. It did not at all reflect a high level of industrialization.

The second manifestation of the colonial character of the economy was that foreign (mostly British) capital had entrenched itself in important segments of the modern sector of the economy. World War II had somewhat weakened the hold of foreign capital. But, at the time of independence, the Indian economy had by no means freed itself from exploitation by, and influence of, foreign capital.

Semi-Feudal Economy:

In the areas that were brought under Permanent or Temporary Zamindari Settlements, the British reinforced pre-existing feudalism by conferring on the former revenue farmers the rights of ownership of land. The actual cultivator ceased to have any legal rights which were recognized and enforced by the courts. In the Permanent Settlement areas, the fact that the land revenue demand had been fixed permanently, while its rental value was rising with growing pressure on land, gave rise to a process of sub-infeudation. Layer upon layer of intermediaries came into being, each entitled to a share in the surplus exacted from the actual tiller. In the areas under the Ryotwari Settlement, the cultivator had been recognized as the proprietor of his land. However, the prevailing conditions in agriculture and the rural economy soon gave rise to landlord-tenant relations on an extensive scale. Thus varying degrees of feudal relations were widespread in the colonial economy.

However, it was not an entirely feudal economy. Foreign capital and enterprise had directly created a capitalist sector. From about the middle of the 19th century, the growing trends toward a market economy had also given rise to an Indian capitalist sector. By the close of the British period, this sector had taken a firm root in a sizable segment of the non-agricultural sector of the economy. Capitalism had, in fact, penetrated even agriculture and handicrafts. Plantations, each employing a large number of workers, were essentially capitalist enterprises even though they also exhibited elements of bonded labor and serfdom. Even in ordinary crop farming, capitalist production relations had emerged and were gaining strength. This process showed itself, on the one hand, in the emergence and growth of a stratum of the more substantial cultivators who carried on cultivation largely by employing hired labor and, on the other hand, in the rise and multiplication of numerous classes of agricultural workers who earn their livelihood principally by hiring themselves out to the cultivators. This development was particularly noticeable in the Ryotwari areas, but even in the Zamandari areas, the more substantial tenant cultivators and the zamindars (in respect of the land under their personal cultivation) had begun to employ hired labor to undertake farming operations. In some cases and areas, agricultural workers were little better off than serfs. Perpetual indebtedness to the employer made them serve him from year to year, or even from generation to generation. Among the millions of artisans all over the country, many had virtually become the employees of merchant capitalists or owners of manufactories. Indeed, the elements of capitalist production relations had appeared, in varying degrees, almost all over the country and were gaining strength. As a result, at the time of independence, India had a semi-feudal economy. 

Backward Economy:

At the end of British rule, India had a very backward, predominantly agrarian economy. Agriculture engaged about 70% of the labor force and generated 59% of the national income. Very probably the initial impact of British rule was to increase the percentage of the labor force attached to agriculture, as the ruined artisans were obliged to seek their livelihood by this activity. The resulting distribution of the labor force was never significantly altered throughout the British period. Agriculture continued to absorb 68 to 72% of the labor force, whereas in many industrialized countries, this percentage had fallen to below 10%. The non-agricultural sector was not only small but also had a very unbalanced structure. The predominant activity in this sector was services (trade, money-lending, transport and communications, administrative, defense and social services, professional services, personal services, etc.)and not industry. Within industry, the vast majority were engaged in household and small industries and not in modern large-scale industries. Finally, within large-scale industries, light industries, which are mostly based on the processing of agricultural produce, dominate the scene, while modern, metallurgical, engineering, building materials, chemical, and petroleum industries are quite insignificant. While Western Europe, North America, and Japan went through an industrial revolution, India remained a predominantly agricultural country, a sort of agrarian appendage to the industrialized world, particularly Britain.

The backward state of the economy showed itself, firstly, in the very low per capita annual income. It was no more than Rs. 1274 in 1950-51 at 1980-81 prices. Moreover, income was very unequally distributed. For these reasons, the vast majority of the people lived in extreme poverty. Inadequate and unbalanced diet, primitive housing, and often none at all, scanty clothing, bear feet, back-breaking toil, ill health, illiteracy, complete lack of social security and cultural amenities, widespread unemployment and underemployment, class and caste oppression, heavy burden of land revenue, rent and debt, and an unsympathetic and exploitative administration made their life bleak and miserable. Famine was a frequent occurrence over the greater part of the British period. When drought, floods, and locusts caused extensive damage to crops, lack of income was as much a cause of starvation for large sections of the population, as a shortage of food. It was only during the last quarter century of British rule that famine was no longer a frequent calamity. The extension of irrigation (as a remedy for droughts), the spread of railways (which made it possible to rush food from the surplus to the scarcity areas), and the establishment of administrative arrangements and procedures to deal with scarcity conditions generally made it possible to avoid famines. However, the serious famine in Bengal in 1943 showed that India was by no means altogether free of famines.

Secondly, poverty and backwardness manifested themselves in mass illiteracy and high birth and death rates. In1941, at the time of the last population census during the British period literates were only 17% of the total population, excluding children below 10 years. The percentage was much lower for the rural areas and for women than the national average given above. The majority of children did not attend school. This was particularly true of girls. As is generally true of very poor and backward societies, both the birth rate and the death rate were high. The birth rate was high all through the British period. During 1931-41, the last complete decade of British rule, the birth rate was as high as 45.2 per thousand of the population. This rate quite approached the biological maximum birth rate. The death rate also remained very high, well over 40 per thousand of the population up to the 1911-21 decade. The death rate started declining during the last quarter century of British rule. It fell to 36.3 during 1921-31 and further to 31.3 during 1931-41. But this decline was a reflection, not of a significant improvement in the standard of living but of the considerable success achieved in (i) avoidance of mass famines. (ii) control of epidemics. The decline in the death rate added a new dimension to the population problem. Not only was the existing population very large, but its growth rate had also become fairly high.

Thirdly, the backwardness of the economy was reflected in a low level of urbanization. All advanced countries show a high level of urbanization. In fact, the majority of the population in these countries live in cities. But under British rule, India on account of its predominantly agricultural economy, remained overwhelmingly a country of villages. In 1941, the urban areas had only 14.2% of the total population. Thus, six out of every seven persons lived in villages which were mostly without any modern amenities.

Finally, on account of its backward economy, the country was almost completely dependent on the rest of the world for plants and machinery needed for economic development. Even the replacements for worn-out capital goods had to be imported. The country also needed to import many essential items to maintain current life and activity. It was in no position to produce modern defense equipment and depended on the outside world for the means of national security.

Stagnant Economy:

Backwardness can be overcome by accelerated economic development. But under British rule, the economy was unable to move except at a snail space. M. Mukherjee’s estimates of per capita income at constant prices for the period 1857 to 1956 suggest that under British rule, after the administration of India was taken over by the British Crown, the country did not experience growth, but the average annual rate of increase in per capita income was no higher than 0.5%. The isolated growth of the population during the closing decades of the period made it difficult to maintain even this rate of growth. The colonial and feudal exploitation; the obstacles to growth inherent in a situation where tens of millions of tiny producers were without the knowledge, the means, and the incentives for modernizing their techniques, the wholly irrelevant policy of laissez-faire; and the alien and oppressive political regime which could never evoke from the people the effort and sacrifices which development demands, were at the root of the very slow growth of the economy. The economy thus virtually stagnated.

Depleted Economy:

World War II, which just preceded the close of the British period, brought about a serious depletion of the economy. In order to meet wartime requirements, plants and equipment were used very intensively, resulting in heavy wear and tear. But replacements were not available. The country had few engineering industries, and imports were not feasible in the required quantities. The result was a serious erosion of physical assets. The same reasons also led to a rundown of inventories (that is, stock of raw materials and semi-finished and finished goods) with producers and dealers. During the war, while the country liquidated a substantial part of its foreign liabilities, mainly the Sterling debt of the government, and built up large foreign exchange assets in the form of a Sterling balance, it suffered a depletion of real capital. Since production depended upon real capital, it was necessary for the country to make up the wartime losses in physical capital, if a decline in production was to be avoided. A vigorous increase in production was impossible as the British had left a seriously depleted economy.

Amputated Economy:

The partition of the country was the final blow inflicted by British rule. During the preceding 100 years or so the trends towards a market economy had been working towards the integration of the various parts of the country into a vast national market. In fact, economic integration had made substantial headway. The British did not back this up by promoting the emotional integration of the country’s various linguistic, religious, and cultural groups. Instead, in pursuance of their policy of divide and rule, they fully exploited and promoted these differences. In particular, they fanned communal animosities. To the very end, they played one community off against another. The Indian people failed to rise to this challenge and foil the imperialist game. The inevitable outcome was the partition of the country as a necessary price for independence.

On account of the economic integration that had been achieved previously, the effect on the economy was as if a butcher’s knife had severed some vital limbs. No longer had the jute Mills of Calcutta access to the raw jute of east Bengal. The cotton mills of Bombay and Ahmedabad had to do without the raw cotton from the canal colonies of West Punjab and Sindh. The loss of food surplus areas in the West resulted in a huge food deficit. The loss of markets, too, was a severe blow to Indian industries. The disturbances, riots, massacres, and mass migrations of people touched off by the partition caused a severe dislocation of the economy. Independent India was, indeed, confronted with immense problems of rehabilitation, reconstruction, and development.