Economy of British India

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The Economy of British India includes the Economy of the Indian subcontinent under the British Colonial authority.

[edit] History

In the second half of the 19th century, both the direct administration of India by the British crown and the technological change ushered in by the industrial revolution, had the effect of closely intertwining the economies of India and Great Britain.^[1] In fact many of the major changes in transport and communications (that are typically associated with Crown Rule of India) had already begun before the Mutiny. Since Dalhousie had embraced the technological change then rampant in Great Britain, India too saw rapid development of all those technologies. Railways, roads, canals, and bridges were rapidly built in India and telegraph links equally rapidly established in order that raw materials, such as cotton, from India's hinterland could be transported more efficiently to ports, such as Bombay, for subsequent export to England.^[2] Likewise, finished goods from England, were transported back, just as efficiently, for sale in the burgeoning Indian markets.^[3] However, unlike Britain itself, where the market risks for the infrastructure development were borne by private investors, in India, it was the taxpayers—primarily farmers and farm-labourers—who endured the risks, which, in the end, amounted to £50 million.^[4] In spite of these costs, very little skilled employment was created for Indians. By 1920, with the fourth largest railway network in the world and a history of 60 years of its construction, only ten per cent of the "superior posts" in the Indian Railways were held by Indians.^[5]

The rush of technology was also changing the agricultural economy in India: by the last decade of the 19th century, a large fraction of some raw materials—not only cotton, but also some food-grains—were being exported to faraway markets.^[6] Consequently, many small farmers, dependent on the whims of those markets, lost land, animals, and equipment to money-lenders.^[6]. More tellingly, the latter half of the 19th century also saw an increase in the number of large-scale famines in India. Although famines were not new to the subcontinent, these were particularly severe, with tens of millions dying,^[7] and with many critics, both British and Indian, laying the blame at the doorsteps of the lumbering colonial administrations.^[6]

Colonial rule brought a major change in the taxation environment from revenue taxes to property taxes resulting in mass impoverishment and destitution of the great majority of farmers. It also created an institutional environment that, on paper, guaranteed property rights among the colonizers, encouraged free trade, and created a single currency with fixed exchange rates, standardized weights and measures, capital markets, a well developed system of railways and telegraphs, a civil service that aimed to be free from political interference, and a common-law, adversarial legal system.^[8] India's colonisation by the British coincided with major changes in the world economy—industrialisation, and significant growth in production and trade. However, at the end of colonial rule, India inherited an economy that was one of the poorest in the developing world,^[9] with industrial development stalled, agriculture unable to feed a rapidly growing population, one of the world's lowest life expectancies, and low rates of literacy.

An estimate by Cambridge University historian Angus Maddison reveals that India's share of the world income fell from 22.6% in 1700, comparable to Europe's share of 23.3%, to a low of 3.8% in 1952.^[10] While Indian leaders during the Independence struggle, and left-nationalist economic historians have blamed colonial rule for the dismal state of India's economy in its aftermath, a broader macroeconomic view of India during this period reveals that there were sectors of growth and decline, resulting from changes brought about by colonialism and a world that was moving towards industrialisation and economic integration.^[11]^[12]