Economic Impact of British Rule in India



  1. Deindustrialisation—Ruin of Artisans and Handicraftsmen
  • One-Way Free Trade- Cheap and machine-made imports flooded the Indian market after the Charter Act of 1813 allowing one-way free trade for the British citizens. Tariffs of nearly 80 per cent were imposed on Indian textiles so that Indian cloth could no longer be cheap.
  • No Steps towards Modern Industrialisation-The loss of traditional livelihood was not accompanied by a process of industrialisation in India
  • Ruralisation- The feature of deindustrialisation was the decline of many cities and a process of ruralisation of India
  1. Impoverishment of Peasantry-Transferability of land was one feature of the new settlement which caused great insecurity to the tenants who lost all their traditional rights in land. The peasant turned out to be the ultimate sufferer under the triple burden of the Government, zamindar and moneylender.
  • Emergence of Intermediaries, Absentee Landlordism, Ruin of Old Zamindars-The new zamindars, with increased powers but with little or no avenues for new investments, resorted to land grabbing and sub-infeudation. Increase in number of intermediaries to be paid gave rise to absentee landlordism and increased the burden on the peasant.
  1. Stagnation and Deterioration of Agriculture The cultivator had neither the means nor any incentive to invest in agriculture.
  2. Famine and PovertyRegular recurrence of famines became a common feature of daily existence in India.
  3. Commercialisation of Indian Agriculture- Commercial crops like cotton, jute, groundnut, oilseeds, sugarcane, tobacco, etc., were more remunerative than food grains. Again, the cultivation of crops like condiments, spices, fruits and vegetables could cater to a wider market. The commercialisation trend reached the highest level of development in the plantation sector, i.e., in tea, coffee, rubber, indigo, etc., which was mostly owned by Europeans and the produce was for sale in a wider market.
  • Destruction of Industry and Late Development of Modern Industry
  • Indian industry was steadily destroyed. The destruction of textile competition of India is a glaring example of the deindustrialization of India.
  • A thriving ship-building industry was crushed. Surat and Malabar on the western coast and Bengal and Masulipatnam on the eastern coast were known for their ship-building industries.
  • Indian traders, moneylenders and bankers had amassed some wealth as junior partners of English merchant capitalists in India. Their role fitted in the British scheme of colonial exploitation. The Indian moneylender provided loans to hardpressed agriculturists and thus facilitated the state collection of revenue.
  • The first cotton textile mill was set up in 1853 in Bombay by Cowasjee Nanabhoy and the first jute mill came up in 1855 in Rishra (Bengal). The industrial development was characterised by a lopsided pattern—core and heavy industries and power generation were neglected and some regions were favoured more than the others—causing regional disparities
  • Nationalist Critique of Colonial Economy-
  • Dadabhai Naoroji, the ‘Grand Old Man of India’, who after a brilliant analysis of the colonial economy put forward the theory of economic drain in Poverty and UnBritish Rule in India.
  • The essence of nineteenth century colonialism, they said, lay in the transformation of India into a supplier of foodstuffs and raw-materials to the metropolis, a market for metropolitan manufacturers and a field for investment of British capital.
  • British Policies Making India Poor- The problem of poverty was seen as a problem of raising productive capacity and energy of the people or as a problem of national development, thus making poverty a national issue.
  • Growth of Trade and Railways to Help Britain-The development of railways, they argued, was not coordinated with India’s industrial needs and it ushered in a commercial rather than an industrial revolution. The net effect of the railways was to enable foreign goods to outsell indigenous products.
  • One-Way Free Trade and Tariff Policy-The nationalists claimed that one-way free trade was ruining Indian handicrafts industry, exposing it to premature, unequal and unfair competition
  • Effect of Economic Drain-According to nationalist estimates, the economic drain at that time was—
  1. more than the total land revenue, or
  2. half the total government revenue, or
  3. one third of the total savings
  4. Economic Issue a Stimulant to National Unrest-The nationalist agitation on economic issues served to undermine the ideological hegemony of alien rulers over Indian minds that the foreign rule was in the interest of Indians, thus exposing the myth of its moral foundations.
  5. Stages of Colonialism in India
    • First Stage
  6. The Period of Merchant Capital (Mercantilism), often described as the Period of Monopoly Trade and DirectAppropriation (or the Period of East India Company’s Domination, 1757-1813), was based on two basic objectives— (i) to acquire a monopoly of trade with India, against other English or European merchants or trading companies as well as against the Indian merchants; (ii) to directly appropriate or take over governmental revenues through control over State power.
  7. The only changes made were: (i) in military organisation and technology which native rulers were also introducing in their armed forces, and (ii) in administration at the top of the structure of revenue collection so that it could become more efficient and smooth.
  8. In this phase there was large scale drain of wealth from India which constituted 2-3 per cent of Britain’s national income at the time.
    • Second Stage –Owing to its mode of exploitation being trade, this stage is also termed as Colonialism of Free Trade. In this phase the following dominant features were visible:
  9. India’s colonial economy was integrated with the British and world capitalist economy.
  10. Free entry was also granted to the British capitalists to develop tea, coffee and indigo plantations, trade, transport, mining and modern industries in India.
  11. The Permanent Settlement and the Ryotwari system in agriculture were introduced to transform traditional agrarian structure into a capitalist one.
  12. Administration was made more comprehensive and included villages and outlying areas of the country.
  13. Personal law was largely left untouched since it did not affect colonial transformation of the economy.
  14. Modern education was introduced to provide cheap manpower to the vastly expanded administration. It was also aimed at transforming India’s society and culture for two reasons: (a) create an overall atmosphere of change and development and, (b) give birth to a culture of loyalty to the rulers.
  15. The taxation and the burden on peasant rose sharply due to economic transformation and costly administration (civil as well as military).
  16. India absorbed 10 to 12 per cent of British exports and nearly 20 per cent of Britain’s textile exports.
  17. Indian army was used for British expansion of colonialism in Asia and Africa.
    • Third Stage-The third stage is often described as the Era of Foreign Investments and International Competition for Colonies. These changes were as follows.
  18. Britain’s industrial supremacy was challenged by several countries of Europe, the United States and Japan.
  19. As a result of the application of scientific knowledge to industry, the pace of industrialisation increased sharply.

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


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