Merchants and

Markets: 1757-1857

Theme IV
Colonial Economy

137
Trade and Markets
COLONIAL ECONOMY
Theme begins with a discussion on British Indian currency policies (Unit 8). Whether
British Indian monetary policies were designed to handle Britain’s ‘severe external liquidity
crisis’? It delves into Indian nationalists’ opinion on the currency and gold standard policy
of the British in Colonial India; whether India was denied the benefits of the gold standard
by reducing her access to gold or else intervention of British interests (by switching
Indian gold asset preferences to sterling) had little significance?
Unit 9 revolves around Dada Bhai Naoroji’s theory of ‘drain of wealth’ from India. Ever
since, the drain of wealth debate has continued to be a heated theme among the economic
historians on British India. Some assert that it drained counrty’s resources; while others
critically questioned the preposition and called it excessively overstated. For some, it was
‘extremely confused and largely coloured by political feelings’. Interestingly, proponents
of conflicting schools of thought are often partially in agreement with each other's findings.
In recent years, the discourse has shifted from an ‘anti-colonial’ theoretical framework to
‘economic theory’.
The contours of economic degradation form the theme of Unit 10. It led to the systematic
destruction of indigenous industries and artisanal classes. British colonial policies completely
brought in the destruction of Indian textile industry, resulting in ‘deindustrialisation’ of
Indian industries and an unfavourable balance of trade between India and England. British
land policies further led to ‘de-agriculturalisation’.
Lastly , the theme (Unit 11) explores whether British imperial policies on account of
drain of Indian resources, money and food exports worsened and triggered famines;
famines became deadly and resulted in enormous loss of lives in the nineteenth century
India or else British rule mitigated famines. Whether it was the British Raj or the geography
responsible for such frequent occurrences of devastating famines; and whether introduction
of railways ended the long eras of deadly famines?

Famine of Bengal
Image Courtesy
Author: Unknown Artist, 1874
Source: https://www.lookandlearn.com/history-images/U233585/The-Famine-in-Bengal; https:/
commons.wikimedia.org/wiki/File:Distressed_Natives_Going_to_the_Relief_Works_
138 _The_Graphic_1874.jpg
 Merchants and
UNIT 8 CURRENCY* Markets: 1757-1857

Structure
8.1 Introduction
8.2 Currency on the Eve of Colonial Rule
8.3 Early Phase of Company Coinage
8.4 The Classical Silver Era: 1835-1893
8.5 The Herschell Committee and After
8.6 Council Bills
8.7 Summary
8.8 Glossary
8.9 Exercises
8.8 Suggested Readings

8.1 INTRODUCTION
The modern monetary system of India evolved under conditions of colonialism. The system
was intended to serve colonial interests, initially the interests of the East India Company
(its shareholders and those connected with it), and by the early decades of the nineteenth
century of economically and politically dominant elites of Britain. Currency was closely
linked to the mechanism for extracting wealth from India for the benefit of Britain. The
system was marked by problems from the 1890s, which became increasingly difficult to
resolve due to the stranglehold of British imperialism. Most of these problems were the
outcome of the role which Indian currency was required to play in the economy of Britain.
The East India Company was granted a royal charter in 1600 by queen Elizabeth I
(r. 1558-1603) of the Tudor dynasty, which gave to it a monopoly of the trade between
England and Asia. This implied that no individual or corporate entity in England could legally
engage in this trade. At the same time the charter permitted the Company to take a specified
amount of precious metal (gold or silver) out of the country for its commercial activities.
This was essential because the Company needed precious metal for purchasing commodities
in Asian markets. At this stage, the main commodities it was seeking to purchase for English
and European consumers (a portion of the goods brought to England was re-exported to the
Continent) were Asian spices – mainly pepper, cloves, nutmeg and mace. As the Indonesian
archipelago was the main source for these spices the East India Company sent its first few
commercial expeditions to this region. However, the Dutch East India Company (VOC;
Vereenigde Oost-Indische Compagnie), which had been formed in 1602 and was much
more powerful having far more resources than the East India Company, prevented the
English from getting access to the major producing areas of Southeast Asia.
It may be mentioned that since the end of the 1490s a new oceanic route between Europe
and Asia had been in use for the trade in spices and other commodities, besides the older
land-cum-sea route through West Asia and the eastern Mediterranean. This was an
all-sea route via the Cape of Good Hope. The feasibility of the route had been demonstrated
by the voyage of a fleet of Portuguese ships commanded by Vasco da Gama, which had
successfully traversed this route (from Lisbon to the Malabar coast, and back) in
1497-99. Subsequently, for most of the sixteenth century, the Portuguese had monopolized
this route, violently imposing their control over it with their armed ships. The Portuguese
monopoly came to be challenged by the end of the century by the VOC (and the English
East India Company). Eventually the VOC put an end to the control exercised by the
Portuguese over the all-sea Cape route, establishing its own monopoly by the early decades
of the sixteenth century. The VOC’s monopoly over the route (for most of the seventeenth
century), and control of spice-producing areas, particularly of Southeast Asia, was greatly
superior to that of the Portuguese. As a result the English East India Company only had

*Prof. Amar Farooqui, Department of History, University of Delhi, Delhi 139

Colonial Economy severely limited access to Indonesian spices. By the latter half of the century the focus of
the Company’s commercial activates had shifted to the Indian subcontinent.
The English East India Company’s presence in coastal areas of India dates back to the
first decade of the seventeenth century when the Company sent out a ship to Surat to
explore possibilities of trade at the port. Surat was at this time the leading port of the
Mughal empire. Shortly afterwards a ship was sent to the Bay of Bengal, the first foray of
the English East India Company in the region, and engaged in trade on the Andhra coast
in and around Masulipatnam. With Masulipatnam (Machilipatnam, in Andhra Pradesh) as
their base, the Company’s commercial agents negotiated with local and regional authorities
for getting permission to trade, on concessional terms. Once they obtained approval they
proceeded to procure cotton textiles for Southeast Asian markets. These were to be used
as a medium of exchange in these markets. Profits from cotton textiles bought from
producers/suppliers in the Coromandel (the term by which the region broadly encompassing
coastal Tamil Nadu and Andhra was then known to European traders), would then be
used for purchasing spices for the home market. The English and the Dutch were both
actively involved in the intra-Asian trade so as to reduce their dependence on precious
metals for buying Asian commodities for Europe. The English East India Company and
the VOC also used extra-economic coercion, including military power and political
intervention, for getting their supplies at cheaper rates. Nevertheless, precious metal
remained vital for their trade. The following discussion will be confined to the English
East India Company (henceforth East India Company).

8.2 CURRENCY ON THE EVE OF COLONIAL RULE

Precious metal was carried aboard English East India Company ships usually in the form
of silver coins. The most widely accepted international currency in Asia was the Spanish
silver ‘piece of eight’ (Spanish ‘dollar’ or peso, equal to eight reales; singular, real). The
conquest of territories in Latin America had provided Spain with vast quantities of silver,
mainly from Bolivia, Peru and Mexico. The silver appropriated from the American colonies
was used for minting coins with a high level of purity due to which they were in demand
in Asia and elsewhere. We should bear in mind that Asia hardly had any deposits of silver,
and therefore Spanish silver in the form of ‘pieces of eight’ enabled Asian economies to
augment their supplies of the precious metal. It is not surprising that these coins were
much sought after, and could easily be used for transactions directly or more frequently
by exchanging them for local currencies at favourable rates.
Money is a medium of exchange, and a store of value (something that has worth or value
which will remain relatively stable over a fairly long period of time). It can actually possess
value equivalent to the content of the precious metal it contains, or nominally according to
the value stipulated by the official authority (government) which issues it. An important
function of money is that it acts as a symbol of sovereignty. The devices and legends
(images, inscriptions, etc.) on a coin proclaim the authority of a government, and are
intended to guarantee the value of the unit of currency (or fractions). When the English
East India Company petitioned Elizabeth for sanction to export silver coins from England
for its trade it was in fact seeking permission to export Spanish silver coins, ‘pieces of
eight’. As England was then at war with Spain (Anglo-Spanish War, 1585-1604), the
queen did not want the English East India Company to transport coins which bore the
emblem and inscription of the Spanish monarch. Coins with an English design were specially
minted for the purpose (the only occasion on which such coins were struck for the English
East India Company), but eventually the crown had to allow the Company to use the
currency which was preferred in Asian markets, viz., Spanish silver coins. We should
bear in mind that some of the other currencies which were used for international trade
included, among others, Venetian gold ducats; and the silver lari minted in southern Iran.
Some of this currency entered Asian networks via the Ottoman lands and Iran.
The English East India Company’s agents had normally to exchange the reales for currency
that was in circulation in the region in which they were operating. This could be done
140 through money-changers or sarrafs (shroffs in English usage), or by submitting them as
precious metal for minting locally. The relative costs of the two methods, and some other Currency
factors such as the promptness with which the sum was required, had to be taken into
account while exchanging/converting coins for local transactions. The money-changers
charged a commission, while mints (as was the case with Mughal mints) levied charges
for producing coins and a tax on minting (seigniorage). The Mughal empire had a
sophisticated uniform monetary system with gold (muhr; ashrafi), silver (rupya) and
copper (dam) coins. The respective values of the coins were determined by the market
values of the metals relative to each other and not determined by the state (an important
role was played by sarrafs in fixing the values on a day-to-day basis, and these could
vary from place to place). Such a currency, using three precious metals with the values
determined by the values of the metals relative to each other, is referred to as tri-metallic.
The system was based on free coinage; anyone could take precious metal to a mint and
have the quantity converted into coins on the payment of mint charges and seigniorage
(this was essential for maintaining a distinction between metal and money). The silver
rupya (rupee) was the basic currency, and also used for accounting purposes by those
connected with commerce and finance. The Mughal muhr (mohur), which was virtually
pure gold, was mainly used for hoarding, or for ceremonial purposes, while the copper
dam was used for low value petty transactions. The rupee introduced in Akbar’s reign
(r. 1556-1605) weighed 178 grains troy1 or about 11.54 grams (a little less than one tola).
Under Aurangzeb (r. 1658-1707) there was a marginal increase in the weight, the rupee
now weighing 180 grains troy (nearly one tola). Mughal silver coins contained almost 96
per cent of pure silver.
In large parts of southern India the hun of the Vijayanagara empire, which was a gold coin
(called pagoda by the English), was in use till the end of the seventeenth century even though
the empire had begun to decline at the beginning of the century. It continued to be coined in
states such as the kingdom of Golconda (Masulipatnam emerged as the premier port of Golconda
in the early decades of the seventeenth century), and by the nayaka warrior-chieftains who
ruled over parts of the Coromandel and owed nominal allegiance to the Vijayanagara ruler.
Following the incorporation of Golconda in the Mughal empire in 1687 the gold-based currency
of the region was phased out and replaced by the silver rupee.

8.3 EARLY PHASE OF COMPANY COINAGE

In the last quarter of the seventeenth century the English East India Company commenced
the production of coins in its own mints at Bombay and Madras. Coinage in these mints
was on a very limited scale at this stage, and the circulation of the coins was confined
mostly to the Company’s settlements or their vicinity for the time being. Since the 1640s
the Company had been conducting its commercial operations in the Coromandel from
Madras, which had become its headquarters in the region in that decade. Bombay had
come into the Company’s possession in the late 1660s, and was made the headquarters of
its establishments in western India in 1687, though Mughal Surat continued to be the main
centre of its commercial activities at least till the early decades of the eighteenth century.
There was a provision in the charter granted to the English East India Company in 1677
(the royal charter granted to it in 1600 had to be renewed from time to time), whereby the
crown officially permitted it to mint rupees for circulation locally, mainly in Bombay.
It seems that the English East India Company could have been minting pagodas at Madras
even before this, in the 1660s, for its trade. We have a reference from this period according
to which ‘consignments of bullion [precious metal of high purity in any form, including
coins] were dispatched to Fort St. George [Madras], and coined into Pagodas in the Fort
mint…’ (Wheeler, 1861: 32). The merchant and traveller Jean-Baptiste Tavernier also
mentions pagodas coined by the English East India Company at Madras during the reign
of Charles II (r.1660-85). Whereas the Company coined money at Bombay as well, this
could not be used for its trade in Surat as no dealer was likely to accept these coins.
Moreover, in the 1690s the Mughal emperor expressed his displeasure over the minting of
1
‘Grains troy’ was a measure widely used in England, particularly for precious metals. One grain
troy = 64.79891 milligrams, or 0.06479891 gram; 180 grains troy = 11.6638 grams. 141
Colonial Economy coins at Bombay. The well-known farman (decree, order), issued by emperor Farrukhsiyar
in 1717 authorised the East India Company to mint coins at Bombay, thus regularising the
status of its coinage. Elsewhere however, particularly in Bengal, it took much longer for
the Company to acquire permission for minting coins. The English East India Company
also obtained permission from the Nawab of Arcot for striking silver rupees in the
Coromandel. These were known as Arcot rupees and were equivalent to the value of the
rupee minted by the Nawab of Arcot (the English East India Company was nominally
subject to the authority of the Nawab). Arcot rupees were marginally inferior to the
standard rupee, and the Company later also began producing some Arcot rupees for
limited purposes in Bengal and Orissa.
With the grant of the diwani of Bengal to the English East India Company in 1765 it had
to urgently address the issue of currency in eastern India, especially as the financial
structure had broken down due to the Company’s intervention and its attempts to subordinate
the region to its interests. This intervention had resulted in the political upheavals that led
to the battle of Plassey (1757) and the military encounter at Baksar (1764). In 1766 a
bimetallic system was introduced in Bengal. Bimetallism is the circulation of coins of two
precious metals (in this case gold and silver) as currency, at times with a fixed ratio of the
value of coins of one metal to those of the other metal, both of which are legal tender, i.e.,
legally accepted for public and private financial transactions. Following the establishment
of the Company’s control, there was a fixed rate at which gold mohurs could be exchanged
for silver rupees. It was soon found that the mohurs had been overvalued while fixing the
official rate of exchange. Consequently, they were being exchanged for a discount by
shroffs in the market place. The main reason for this situation was that there was a
shortage of silver, and hence of silver coins relative to the demand.
When the Scottish economist James Steuart, who was an expert on money, was consulted
in the matter he pointed out that it was necessary to regularly fine-tune the ratio between
gold and silver coins in accordance with the real value of the two metals for bimetallism to
work smoothly. Subsequently, one of the members of the governor-general's council, Philip
Francis, suggested that gold should only be used for larger payments, and not considered
as legal tender. He recommended the rate of exchange be fixed at sixteen rupees for one
mohur. In fact this was very high; gold mohurs could not be exchanged for rupees at that
rate, and by the late 1770s the discount on mohurs had risen substantially. In 1788 it was
decided that henceforth no more gold coins would be minted in Bengal.
The transfer of surpluses from Bengal to England, and the cessation of precious metal
exports from England to India for the East India Company’s investments were the main
factors responsible for scarcity of silver from the 1760s onwards.The East India Company
now had access to the revenues, the loot and plunder of Bengal, and did not need to bring
silver. Various experiments were attempted to resolve the problem, including restrictions on
the coinage of gold, till the early 1790s, when it was announced that gold and silver could be
freely minted. This more or less amounted to reverting back to the policy which was pursued
immediately after the grant of diwani. At the same time, there were huge exports of silver
from England to Bengal in 1798 (after more than forty years since battle of Plassey [1757]).
To a large extent these exports were due to mounting military expenses caused by the costly
war against Mysore (the Fourth Anglo-Mysore War, 1798-99, was in progress at this time).
It has been estimated that the volume of silver imported into Bengal by the East India
Company that year was four lakh ounces (11339.8093 kg) (Bowen, 2010: 456, Table 1).
By the first decade of the nineteenth century the Company began shifting to a monometallic
silver standard. In 1806 the East India Company’s directors recommended that the silver
rupee should be the main currency in the Company’s territories. Gold mohurs were not to
be discontinued. They could be used as an alternative, but their use would be optional (for
high value transactions) and the ratio between gold and silver coins would not be fixed by
the government. This scheme began to be implemented from 1806 onwards, initially in the
context of the Madras Presidency which had acquired vast new stretches of territory
after the Fourth Anglo-Mysore War. The monetary measures of the Company in southern
India led to the complete displacement of the gold pagoda by the silver rupee, and the
142
standardisation of the rupee, beginning with southern India. This policy was extended to
western and eastern India. In western India the Bombay Presidency acquired large tracts Currency
of territory as a result of the annexations which followed the Third Anglo-Maratha War
which ended in 1818. Needless to say, the standardisation of currency went hand in hand
with territorial expansion.

8.4 THE CLASSICAL SILVER ERA: 1835-1893

The shift to the silver standard was formalised through a law enacted in 1835. The Gold
and Silver Coinage Act (Act No. XVII of 1835) made the silver rupee, coined according
to specifications mentioned in the act, legal tender in all the territories of the East India
Company, from September 1835 onwards. According to the provisions of the act the
rupee was to weigh 180 grains troy, of which 11/12ths (165 grains) would be pure silver,
and the remaining 1/12th (15 grains) would be alloy. The alloy was required for metallurgical
purposes. The one-rupee coin was to bear the image (head) of the reigning monarch
(at this time William IV, r.1830-37), and on the reverse carry the inscription, ‘East India
Company’. Gold mohurs were to be minted with a similar design, of exactly the same
weight as the rupee, and with the same proportions of gold and alloy, and officially one
mohur was equal to fifteen rupees. While gold coins were to be minted, they were no
longer legal tender; only the rupee was legal tender.
Prior to the 1835 Act the Company itself had been minting rupees with several variations
in the design in its mints located in the three presidencies (Bengal, Madras, Bombay). All
these coins carried the name of the Mughal emperor Shah Alam II (r. 1759-1806). By
inscribing the name of the emperor on their coins, the East India Company ensured wider
acceptability for its currency. The practice of putting the name of the Mughal emperor
was discontinued from 1835 onwards, even though the pre-1835 coins continued to be
legal tender till as late as 1878. The pre-1835 East India Company coins can at times
cause confusion for two reasons. They could have been coined at a mint located at a
different place from that mentioned on the coin itself (as for instance coins minted at
Bombay in 1830, which had the mark for Surat engraved on them); and secondly the
regnal year of the emperor inscribed on the coin could, especially from the late 1770s, be
a ‘frozen’ date. A prominent example of this practice are the rupees of the nineteenth
regnal year of Shah Alam. Even coins minted in later years carried this ‘frozen’ date. The
objective of designating a coin minted at a later date as that issued in the nineteenth year,
was to prevent the sarrafs from discounting the coins while exchanging them.
Money-changers invariably discounted issues of years prior to the current year (the older
the coin, the higher the discount even when the metal content remained intact), and the
‘frozen’ date made it difficult for them to determine the precise year in which they had
been issued. The name of Shah Alam II, who died in 1806, too was ‘frozen’. Coins minted
under his successor Akbar Shah (r.1806-37) continued to be issued in Shah Alam’s name
till 1835 when the Company introduced coins of a new design with the English monarch’s
image.
The silver standard remained in force till the early 1890s. It needs to be underlined that
Britain itself was on the gold standard since the beginning of the nineteenth century. The
coinage introduced in 1817 after the Napoleonic Wars (c.1799-1815), was based on the
gold sovereign (1 sovereign, or one pound = 20 shillings).The sovereign had full metal
value (i.e., value as pure gold). Possessing a sovereign (= £1) meant possessing pure gold
equivalent to the weight of the sovereign, which weighed a little less than eight grams. We
shall have more to say about this later. The rupee-pound exchange rate was to become a
major issue from the 1890s onwards.
In 1841 the British Indian government had announced that the gold coins minted under the
1835 Act would be accepted at government treasuries at the rates specified under the act
(gold:silver, 1:15). However, by the late 1840s the value of gold, relative to silver, began to
fall due to the discovery of large deposits of gold in California and Australia between 1848
and 1851, which augmented the international supply of the metal. Besides, there was
growing demand for silver (with its rising value) for hoarding and making jewellery. As a
result it became difficult for the government to sustain the exchange of gold coins for 143
Colonial Economy silver rupees at the rate of 1:15 without incurring losses. Given that gold was overvalued
by the government, gold mohurs came to be preferred to silver rupees by people for
making payments to the government. In the market, fewer silver rupees would be
exchanged for a gold mohur than at the treasury. Government treasuries therefore stopped
receiving gold coins in 1853, but under the system of free coinage which prevailed, gold
could still be taken to the mint to be coined according to the specifications set out in the
1835 Act though it was effectively demonetized.
We need to take note of one significant development of the four decades from 1853 to 1893.
The government tried to resolve problems of currency by enacting the Paper Currency Act
in 1861. This was intended to promote the use of paper currency, with the issuing of notes of
various denominations ranging from ten rupees to ten thousand rupees. These notes were
legal tender within the respective ‘circles’ or zones in which they were issued. Earlier, the
presidency banks (respective banks established in the three presidencies) could issue currency
notes. Under the provisions of the 1861 Act this power was taken away from banks, and
henceforth only the government could issue notes. A specified percentage of coins and
precious metal had to be held in reserve against the currency notes. The notes could be
encashed (converted to coins) on demand within their respective circles. By the first decade
of the twentieth century the number of circles had risen from the initial four, to seven circles
(Calcutta, Kanpur, Lahore, Madras, Bombay, Karachi, Rangoon).
From the early 1870s the value of silver began to fall steadily in relation to gold. The value
of gold, which had remained about 15.5 times that of silver for nearly two decades prior to
1872, rose to 27 times that of silver in the following two decades. To put it differently,
there was massive fall in the prices of silver between the early 1870s and early 1890s.
This was the outcome of developments at the global level affecting the supply of the two
precious metals. Now relatively more silver was available than in the earlier decades.
It was against the backdrop of this situation that the British Indian government initiated a
series of consultations on the issue, and there were extensive deliberations among colonial
policy-makers at the highest levels about the problems of currency. This was a matter of
great concern to policy-makers due to the fact that Indian currency was so closely linked
to the transfer of wealth to Britain. Beginning with the setting up of a committee headed
by Lord Herschell, lord-chancellor of Britain (the senior cabinet minister whose portfolio
includes the judicial and legal aspects of governance in Britain), the British Indian
government initiated a set of measures to address currency problems. The seven-member
Herschell committee had a strong presence of experts in statistics. We should keep in
mind that the British Indian government worked under the directions of the India Office
(the establishment of the secretary of state for India who was the senior cabinet minister
in charge of Indian affairs), and ultimately the decisions of the British cabinet were final
in these matters. Five committees/commissions (including the Herschell committee) were
constituted between the 1890s and the outbreak of the Second World War to examine the
question of currency and recommend measures to resolve the problems. We shall not be
discussing these separately and look at the broad trends in the history of currency in this
period. It is worth bearing in mind that the currency of the British Indian government was
legal tender in the princely states as well.

8.5 THE HERSCHELL COMMITTEE AND AFTER

Whereas from the 1870s the British Indian government was in favour of adopting the gold
standard, as it was not possible to stop the steady decline in silver prices, the British cabinet
was not inclined to intervene in any drastic manner. The decline in prices of silver coincided
with falling prices of commodities in international markets, and it was argued by those
advocating non-intervention that the depreciation (declining value) of the rupee would help
sustain the demand for Indian goods. On the other hand the British Indian government had
to remit a large sum of money to Britain on account of ‘Home Charges’ (the expenses
incurred in Britain for governing India!) and the fall in the value of the rupee relative to the
pound (which was linked to gold) meant that there was a steady rise in remittances in terms
144 of silver, leading to an increase in the burden of taxes imposed on Indians.
The Herschell committee recommended that the mints operated by the British Indian Currency
government should be closed for private minting of silver coins (which had been the principle
on which the mints had hitherto operated). This would limit the supply of silver rupees. The
government could, if required, mint silver coins at the rate of 1 rupee = 1 shilling (abbreviation,
‘s’), and 4 pence (abbreviation, ‘d’). The traditional British currency system consisted of
pounds (£), shillings and pence as monetary units: 1 pound (£) = 20 shillings (s); 1s = 12
pence (d)2. Thus the government’s preferred rate would be Rs 1= 1s 4d.
The recommendations of the Herschell committee were accepted and changes in monetary
policy were made accordingly. Payments to the government by the public could be made
at the rate 1 rupee = 1s 4d. At this time the value of the silver rupee stood at 1s 1 12 d. By
1898 it had gone up to 1s 4d, the rate which the government wanted to attain. Yet another
committee, headed by Henry Fowler (who had been secretary of state for India in the
mid-1890s), was constituted in 1898 to examine currency problems. The Fowler committee
(Indian Currency Committee of 1898) recommended that India should adopt the gold
standard; an exchange rate of £1 (gold sovereign) = Rs.15; and unrestricted coinage of
gold in India. Following the acceptance of the recommendations of the committee it was
decided to establish a branch of the Royal Mint of the United Kingdom in Bombay for
minting gold coins. The proposal was strongly opposed by senior officials of the Royal
Mint, and eventually the scheme was abandoned.
By a legislative measure of 1899 the sovereign and half-sovereign were made legal tender.
The rate of exchange notified by the government was fifteen rupees for one (gold) sovereign
(£1). The rupee remained the main currency for most transactions, and it was now
effectively a token currency as its value (rate of exchange), fixed at 1s 4d, was laid down
by the government and was not determined by the actual silver content of the coin.
Whereas the British Indian government formally accepted the recommendations of the
Fowler committee, the key recommendations actually remained only on paper. However,
one outcome of its recommendations was the creation of a Gold Standard Reserve against
which rupees were to be put into circulation. The rupee was now becoming a token
currency, as its intrinsic value diverged from its face value, the face value (or nominal
value) being higher than the intrinsic value (the value of the silver in the coin). The purpose
of the Gold Standard Reserve was to maintain a sufficient reserve of gold to allow
conversion of rupees to gold. This was intended to assure the public that the rupee could
be used confidently as it was backed by adequate reserves of gold. The fee realized on
minting of coins was to be added to the Gold Standard Reserve (to which we might add
the interest earned on the Reserve). The possibility of getting gold for silver was in fact
notional; it became increasingly clear to those who had a grasp of currency issues that
what the government was doing was something quite different. Firstly, a substantial portion
of the reserves were in the form of ‘sterling’ securities, i.e., in the form of bonds, government
stock or other similar financial instruments, in British currency (sterling; pounds sterling).
Secondly, a large part of the reserve in the form of gold was kept in Britain rather than in
India. The former may be regarded as an investment or loan. By the eve of the First
World War a large part of the gold had been placed in Britain. The nationalist critique of
colonial monetary policy was that the Gold Standard Reserve was not easily accessible to
India. As we shall see, it was being used almost exclusively in the interests of the British
economy and for maintaining the financial dominance of London, and of the pound,
internationally.
The monetary system introduced in India by the beginning of the twentieth century was
based on the Gold-Exchange Standard. The main underlying principle of the Gold-Exchange
Standard is that a currency linked directly to gold need not be backed by gold or wholly by
gold, but could be backed by securities or by bills of exchange in a currency that can be
easily converted into gold – in this case the pound. India’s domestic currency (silver
rupees) was guaranteed by instruments such as securities or bonds or bills of exchange
which could be encashed in gold. Whereas rupees could not be converted to gold for
2
British currency was decimalised in 1971 (1 pound = 100 pence), bringing to an end the traditional
system. 145
Colonial Economy domestic purposes, gold would be available in this system for meeting international
obligations in gold. One argument put forth by colonial policy-makers was that there was
no need to hold precious-metal reserves or use up precious metal for minting of coins,
when the objectives could be attained by backing token currency with securities. This
system deprived India of gold for its financial transactions. On the other hand, India’s gold
reserves were used to generate earnings for the British economy. In order to grasp this
process we need to examine the Council Bills mechanism. This mechanism was also vital
for sustaining the Gold-Exchange Standard, which required adequate gold to be available
in London for those who sought to convert rupees to sterling through drafts/bills. Before
considering the Council Bills mechanism we may sum up the main features of the system
as they evolved from 1898 onwards:
...the monetary system of India from 1898 to 1916 was an exchange standard. But it was
not, strictly speaking, a gold exchange standard, for there was no obligation on the
currency authority during this period to give gold in exchange for the local standard
currency (the silver rupee). It was a sterling exchange standard, which, however,
practically amounted to a gold exchange standard, so long as sterling was not divorced
from gold and so long as the Secretary of State and the Government of India maintained
the interchangeability of rupee into sterling and sterling into rupee.
Jain, 1933, p. 10

8.6 COUNCIL BILLS

Even though India had a favourable balance of trade vis-a-vis Britain, it had no real
earnings from this trade. British importers made payments in pounds sterling to the secretary
of state’s treasury in London, receiving Council Bills against these payments. These could
be encashed by exporters in India in rupees, and were paid out of Indian revenues. The
sale of Council Bills in London by the Secretary of State was closely linked to the financial
requirements of Britain. An increase in the demand for rupees in India invariably resulted
in an increase in the Gold Standard Reserve in London. The Secretary of State became
the largest dealer in foreign exchange in Britain, and one of the biggest money-lenders
using the Reserve for extending loans to favoured banks and financial institutions. These
banks borrowed from the India Office at the rate of 2 per cent, and lent the sums in the
London financial market at 3 per cent. The Council Bills themselves were kept a low rate
to prevent gold being sent directly to India where it would be presented to government
treasuries to be converted into rupees. The rate for Council Bills in London could not be
much higher than the official rate of exchange for sterling in India, 1s 4d for a rupee, and
1
the Bills were usually sold for around 1s 4 8 d. At this rate it would have been more
expensive to dispatch gold to India as the transfer of bullion involved transportation and
insurance costs. While the original justification for this mechanism had been that it was
necessary for meeting the ‘obligations’ of the British Indian government in Britain for
Home Charges, by the end of the 1890s Council Bills were being used extensively for
financial transactions related to trade.
During the period between the two world wars, Britain tended to tighten its control over
India’s economy in order to arrest its own downward slide. On the outbreak of the First
World War Britain had to give up the gold standard, and British currency notes could not
be converted into gold. After the war, Britain made use of its hold over the colony to meet
its international financial obligations by seizing India’s trade surpluses. While India’s
commodity surplus registered a rapid increase for most of 1920s, so much so that it had
the second largest export surplus in the world (being next only to the US), India’s earnings
continued to be intercepted by Britain which needed these even more desperately in the
inter-war years. In fact these earnings gave to Britain the ability to contemplate a return
to the gold standard by 1925. Under the provisions of the Gold Standard Act of 1925
enacted for Britain, currency could be converted to gold, but not in the form of gold coins.
Gold could be obtained in the form of gold bars weighing 400 ounces each (about 11.33
kg), at the rate of £3 17s 10 12 d per ounce troy of gold (about 28.35 gm). Such high value
transactions were out of the question for ordinary people in Britain. Subsequently, in 1927,
146
the rupee-sterling rate was fixed at 1s 6d, which amounted to overvaluation of the rupee Currency
in relation to the pound. Nationalists and business groups in India advocated the lower
rate that had prevailed for nearly two decades, namely, 1s 4d. It was argued that this rate
would be more favourable for Indian manufacturers and exporters. On the other hand, at
the rate of 1s 6d, an exporter of goods from abroad, exporting to India would get a higher
sum per rupee, when converted to sterling, upon remittance of earnings from India to
Britain or elsewhere (1s 6d, instead of 1s 4d or Rs. 15 = £1). For example, an item
imported into India and sold at Rs. 15 would yield £1 at the exchange rate of 1s 4d, while
it would be worth £1 2s 6d or an additional 1/8th at the rate of 1s 6d. On the other hand,
the Indian exporter would get fewer rupees for goods sold abroad. This rate amounted to
giving an unearned bonus to foreign producers which was denied to Indian producers and
exporters, rendering competition more intense for Indian producers as they did not have
such an unfair advantage.
The monetary system seemed to function smoothly with the 1s 6d rate till the end of the
1920s when prices of agricultural goods began to fall rapidly in the international market.
Agricultural prices had been declining since 1926 and fell drastically in 1930. In order to
pay back loans to moneylenders, and meet the revenue demands of the government,
peasants were forced to sell whatever little savings they possessed in the form of gold.
From 1930 onwards there were extensive distress sales of gold, a large proportion of
which began to be exported from India, exports amounting to £236 million between 1931
and 1937. Historically this was unprecedented as India was traditionally an importer of
gold. Since much of the gold was transferred to Britain, it provided resources for Britain
to recover partially from the economic crisis caused by the Great Depression of the
1930s. Gold was syphoned from India for Home Charges, and remittances such as earnings
on private investments, insurance and shipping charges, and other ‘invisible’ earnings
which amounted to over 15 per cent of the total invisible earnings of the British economy
between 1931 and 1936. In 1931 Britain gave up the gold standard. The rupee, which was
linked to British currency at 1s 6d, began to fall in value as the pound too began to fall in
value. Simultaneously, the sterling began to fall in relation to gold, thereby leading to the
fall of the rupee in relation to gold. In linking the rupee, in a situation of acute crisis, to the
sterling, the colonial state ensured that the Indian economy continued to be tied closely to
the British economy serving the interests of the latter. Once the Second World War broke
out, India’s sterling balances held in Britain became useful for meeting war expenses.
The bulk of these balances, as we have noted, were held in the form of sterling securities,
rather than in gold. This did not allow India to gain from the increase in the value of gold
during the war, which might have enabled it to overcome some its currency problems
after 1947.

8.6 SUMMARY
The monetary system as it evolved during the colonial period was intended to serve colonial
interests and was intricately connected to the economic interests of the colonial power.
Further, problems of British Indian currency were largely related to wealth transfer to
Britain. The primary form of currency of the East India Company’s early trade was
Spanish silver coins, ‘piece of eight’. In the late seventeenth century the East India Company
minted the earliest coins. They received official permission to mint coins locally in 1717
and thus minted coins at Bombay and Madras. In 1766 the East India Company introduced
bimetallic coins in Bengal which in the nineteenth century shifted to monometallic silver
standard rupee as primary currency. In 1835 by Gold and Silver Coinage Act silver rupee
became legal tender in British East India Company territories, though coins issued in the
name of the Mughal emperor also continued to remain in circulation. In 1861, paper
currency was introduced. However, sharp fall in the value of silver from 1870 onwards
prompted the British Indian government to have serious deliberations. Herschell Committee
was first to be constituted to address the issue of declining silver prices, which recommended
closing of private minting of silver coinage. Accordingly exchange rate of rupee was
fixed. Later Fowler Committee suggested adoption of gold standard which was never put
into practice. Instead, Gold Standard Reserve was created which backed Indian rupee 147
Colonial Economy with securities. Further, Council Bills were introduced which allowed for conversion of
pounds into sterling. It had deep ramifications on Indian economy for British importers
made payments in pound sterling and Indian exporters received rupees out of Indian
revenues. After 1926 agricultural prices fell sharply resulting in distress sales of gold
reserves. Indian gold reserves were siphoned to Britain to recover British losses out of
Great Depression. Finally, in 1931 Gold Standard was abandoned resulting in sharp decline
in the value of rupee. Again in the World War II Indian silver balances were used to cover
war expenses, preventing India benefitting from rising value of gold. Independent India's
currency problems were thus legacy of British colonial policies.

8.7 GLOSSARY
Asharfi/Muhr Mughal gold coin
Dam Mughal copper coin; 40 dams = 1 Mughal silver rupee
Diwani Rights Rights to collect taxes; In 1765 diwani rights of Bengal,
Bihar and Orissa were granted to the East India
Company by the Mughal Emperor Shah Alam II after
the defeat of the combined forces of Mir Qasim,
Shujauddaula,, Nawab of Awadh and Shah Alam II in
1764.
Hun/Pagoda Gold coin in circulation in Deccan and South India. It
was modelled on ducat, Venetian gold coin.
Reales A unit of currency in Spain introduced by Pedro I of
Castile (r. 1350-1369) until it was replaced by peseta in
1868.
Sarraf Money-changers

8.8 EXERCISES
1) Discus the currency policy of British Indian government.
2) In what ways did the Herschell Committee transform Indian currency?
3) Examine various committees appointed and currency laws passed by the British Indian
government.
4) ‘Indian currency system was intended to serve the colonial interests’. Comment.
5) British Indian currency problems were largely related to wealth transfer to Britain.
Analyse.
6) ‘Independent India’s currency problems are the legacy of British colonial policies’.
Comment.
7) What role did the Council Bills mechanism play in the transfer of wealth from India to
Britain?

8.9 SUGGESTED READINGS

Bagchi, Amiya Kumar (1997), ‘Contested Hegemonies and Laissez Faire: Controversies
over Monetary Standard in India at the High Noon of the British Empire’, Review, Vol. 20,
No. 1, (Winter), pp. 19-76.
Banerji, Arun (2001), ‘Revisiting the Exchange Standard, 1898-1913’, I: ‘Steps to the
Exchange Standard’, Economic and Political Weekly, (December 1-7), Vol. 36, No. 48,
pp. 4490-4500.
Banerji, Arun (2002), ‘Revisiting the Exchange Standard, 1898-1913’, II: ‘Operations’,
Economic and Political Weekly, (Apr. 6-12), Vol. 37, No. 14, pp. 1353-1362.
148
Banerji, Arun (2002), ‘Revisiting the Exchange Standard, 1898-1913’, III: ‘Steps to the Currency
Exchange Standard’, Economic and Political Weekly, (Oct. 26 - Nov. 1), Vol. 37, No.
42, pp. 4455-4465.
Bowen, H.V. (2010), ‘Bullion for Trade, War, and Debt-Relief: British Movements of
Silver to, around, and from Asia, 1760-1833’, Modern Asian Studies, 44, no. 3.
Cecco, Marcello de (1974), Money and Empire: The International Gold Standard,
1890-1914, especially Chapter 4 (‘Indian Monetary Vicissitudes – an Interlude’), New
Jersey: Rowman and Littlefield; https://archive.org/details/moneyempireinter0000dece/
page/n7/mode/2up?view=theater
Habib, Irfan (1963/1999), The Agrarian System of Mughal India, first edition, Appendix
C, Sections 1 and 2, New Delhi: Oxford University Press.
Jain, L.C. (1933), The Monetary Problems of India, London: Macmillan and Co.
Keynes, John Maynard (1913), Indian Currency and Finance, London: Macmillan &
Co., Chapters 1, 2 and 5; https://archive.org/details/indiancurrencyan014875mbp/page/
n5/mode/2up?view=theater
Kumar, Dharma and Meghnad Desai, eds. (1983), The Cambridge Economic History
of India, vol. II, c.1751-c.1950, Cambridge: Cambridge University Press, pp.762-776.
Wheeler, J. Talboys (1861), Madras in the Olden Time, Madras: J. Higginbotham, Vol. I.

149
Colonial Economy
UNIT 9 DRAIN OF WEALTH DEBATE*
Structure
9.1 Introduction
9.2 Nationalists and the Drain
9.3 Critics of the Drain
9.4 Left Nationalist Views
9.5 Recent Arguments for and Against Drain
9.6 Summary
9.7 Glossary
9.8 Exercises
9.9 Suggested Readings

9.1 INTRODUCTION
In a paper entitled ‘England’s Debt to India’ Dadabhai Naoroji first highlighted in 1867
that Britain was bleeding India by extracting and appropriating more than one-fourth of
India’s revenue. He developed his arguments further in a paper on the ‘Poverty of India’
in 1873 and in 1901 he wrote Poverty and Un-British Rule in India. About the same
point in time Mahadev Ranade and Bholanath Chandra too developed their own ideas of
the drain of wealth from India. These ideas would become the mainstay of the nationalist
critique of British rule in India. Leaders with divergent ideas about India's freedom struggle
agreed on the economic exploitation of India by various means. British spokesmen put up
a stout defense asserting that India only had to pay a small price for the benefits of Pax
Britannica, construction of railways, access to the cheapest money market in the world
and the benefits of modern knowledge and institutions. In recent times the arguments for
and against the drain of wealth from India have been modified and reformulated by radical
and liberal economists and historians.

9.2 NATIONALISTS AND THE DRAIN

Although it was Naoroji who developed a systematic understanding of the drain of wealth
from India the idea can be traced to several scholars and British administrators much
before him. Alexander Dow, Philip Francis, Sir John Shore and George Wingate argued
that there was a substantial drain of wealth from India during the late eighteenth century.
According to Rama Roy in the Ninth Report from the Select Committee of the House of
Commons Edmund Burke in 1783 had articulated ‘‘a macroeconomic exposition of the
drain’’ [Roy, 1987: 42]. The exports from India were not paid for amounting to a loss of
twelve hundred thousand pounds per annum. Rammohun Roy cited approvingly a colonial
official estimate that the tribute from India to Britain amounted to 110,000,000 pounds
between 1765 and 1820. Bhaskar Tarkhadkar, Bhau Mahajan and Ramkrishna Vishvanath
also critiqued the drain of wealth from India in the 1840s before Naoroji. [Naik, 2001]
Bankim Chandra Chatterjee also believed that the Home Charges and the expenditure
on wars in India amounted to a drain of resources.
It is Dadabhai Naoroji who became the major proponent and propagator of the drain of
wealth from India. It was not only about the loss of wealth but also about the loss of
capital. It was the major cause of poverty in India. According to Dadabhai Naoroji about
fifteen hundred million pounds was transferred from India to Britain. This estimate was
based on a five per cent interest on the total amount of the drain during this period. He
estimated that between 1883 and 1892 the drain amounted to Rs 24 crores a year and
was 34 million pounds or 51.5 crores in 1905. According to G.V. Joshi the drain between
1834 and 1888 came to 660 million pounds. By 1888 the annual drain came to 25 crores a
year. In 1901 the President of the Indian National Congress, D.E. Wacha, stated that the
drain was between thirty to forty crore rupees a year. Surendranath Banerjea stated that
150 *
Dr. Rohit Wanchoo, St. Stephens College, University of Delhi, Delhi
thirty million pounds was the average annual drain during the last three decades of the Drain of Wealth Debate
nineteenth century.
At the beginning of the twentieth century R.C. Dutt estimated the drain at twenty million
pounds a year. According to Dutt’s calculation one-fourth of the revenue of India was
remitted to England on average. Most nationalists believed that the drain was important
but Naoroji believed that it was the principal cause of poverty in India. A.K. Dasgupta
points out, however, that neither Naoroji nor Dutt developed the link between capital
transfer and the terms of trade. Subramania Iyer was one of the few who did in 1903.
Citing J.S. Mill he observed that the annual drain forced India ‘‘to exchange her produce
on less advantageous terms’’. [Dasgupta, 1993: 82-83] Although Bipan Chandra finds
Naoroji’s calculations sometimes unsound and ‘woolly’ he believes that his claim before
the Welby Commission that if the money had not gone out of the country it would have
‘‘fructified’’ is significant. It perhaps foreshadowed the investment multiplier. [Chandra,
1963: 591] R.C. Dutt was among the first to recognize the negative impact of the ‘‘internal
drain’’ or the transfer of incomes from peasants to traders and middlemen. The decline in
income and consumption would be higher than the actual transfer. [Balachandran, 2003: 8]
The nationalists differed with each other about the amount of the drain and even its
definition. The widest definition of the drain was based on Naoroji’s ideas of an unrequited
export surplus – that India did not get an equivalent return either in terms of merchandise
or treasure. The concern about the terms of trade between primary producing and
industrialized countries was elaborated later. The narrower definition was that based on
the Home Charges – the sum of money that had to be remitted annually in pound sterling
from India to Britain. These charges were to pay for the expenses of the Government of
India incurred in Britain, the payments due in Britain for the pensions of civil and military
officials, the purchase of stores and private remittances by non-officials. The Home Charges
also included the interest on railway and irrigation loans but these were not counted as a
drain by all the nationalists. Naoroji also spoke of the excessive sterling cost of the
administration in India because British civil and military officials were paid enormous
salaries and pensions and Indians were excluded from higher positions. This led to a
‘‘moral drain’’ since Indians could not develop higher skills and knowledge and those
Europeans in India who did left the country after retirement. By the early twentieth century
Naoroji would attach the highest importance to the negative effects of excluding Indians
from positions of responsibility. Moreover, India had to borrow abroad because of the
drain and the money that had been siphoned off was coming back to the country as
investment by Britain.
In response to the charge that any independent country would be expected to pay interest
on loans it has been argued that the nationalists were objecting also to the purposes for
which the loans were taken and how the money was spent. The railway lines were laid to
promote the interest of the British industries – to move cotton goods from the ports to
consuming centres and to move raw cotton from the interior to the port towns. On the
contrary irrigation was neglected despite persistent demands by the nationalists. Even the
freight rates were designed to promote this process. The railways were built at an
extravagant cost because of the assurance that a five per cent rate of return would be
given on railway loans regardless of performance. Although the railways reduced the
cost per ton mile the railway system was not profitable as a whole until the early years of
the twentieth century. Railways were built for strategic reasons and some were built to
reach hill stations like Simla, Darjeeling or Ooty. But above all there was no development
of an iron and steel industry in India – no backward or forward linkages – despite the
enormous growth of the railways.
Markovits has drawn attention to the fact that the East India Company was often drawn
into foreign military campaigns because of British strategic or foreign policy objectives of
limited interest or value to the Company. This happened in the case of the campaign
against Manila in the Philippines in 1762 and against Ceylon in 1795-1796. Eighteen hundred
sepoys out of a force of thirty-two hundred troops were sent from the Madras Presidency
to fight the Dutch. After the Dutch were defeated, Ceylon briefly became part of the
151
Colonial Economy Madras Presidency. In a few years the imperial government could not manage Ceylon without
financial help from India. Even the retention of the monopoly of the cinnamon trade was not
sufficient to ensure that the Company would get its money back nor did it have the means to
recoup its losses through taxation. The campaigns in Egypt, Mauritius, Burma and Java were
expensive and were not rewarding despite some of the initial gains in Ceylon and Java. Concludes
Markovits, ‘‘An overall audit of the Company’s contribution to British global expansion between
1762 and 1852 would have to conclude that losses clearly surpassed gains. Had not the tea
trade provided constantly high profits to the Company, its foreign adventures would have
severely threatened India’s financial position.’’ [Markovits, 2017: 388]
In 1880 the Indian tax payer supported 130,000 Indian and 66,000 British troops. Lord
Salisbury described India as ‘an English barrack in the Oriental seas from which we may
draw any number of troops without paying for them.’ [Tomlinson, 1975: 341] Also, the
Indian Army was used to promote imperial interests by fighting wars or maintaining internal
peace in different parts of the world. In 1900 India employed about one-third of the whole
British Army. The Indian revenues were charged with the cost of training these men in
England and a major share of their pensions. In 1890 the entire expenditure of 16,000 men
for an average of six years per man had to be borne by the Indian exchequer. Between
1875-6 and 1896-7, the net Army expenditure in England rose from £3,476,000 to £4,133,000.
Because of the fall in the exchange value of the Rupee, this meant that the cost to India
increased from Rs38,580,000 to Rs 68,650,000. In the same period, the total Army
expenditure in England and India, including exchange, increased from Rs 162,590,000 to
Rs 259,730,000. [McLane, 2003]
Table I
Expenditures on Overseas Military Expeditions, 1838-42 to 1885-6
Expedition Date Ordinary Charges Extraordinary Charges
Paid by India Paid by Paid by India Paid by
England England
1838-42 All None All All
1st Afghan 1839-40 All None None All
2nd China 1856-7 None All None Half
Persia 1856 All None Half All
3rd China 1859 None except
expenses of
Indian Navy
vessels All None All
Abyssinia 1867-8 All None None All
Perak 1875 All None None All
Malta 1878 None All None All (by
Colonial
government)
2nd Afghan 1878-80 All None All but 5,000,000
5,000,000
Egypt 1882 All None All but 5000 5000
Soudan 1885-6 All None None All
Source: Indian Expenditure Commission, Vol. II, First Report, Appendix 45, No. 13,
Sub-Appendix, para 123, Governor General in Council to Secretary of State, 20 August 1895.
Source: John McLane, ‘The Drain of Wealth and Indian Nationalism at the Turn of the Century’,
in G. Balachandran (ed), India and the World Economy, 1850-1950, 2003. Table 3.1, p. 81.

9.3 CRITICS OF THE DRAIN

Lord Curzon was very dismissive of the argument that India was being impoverished by
the British. While some rejected the charge entirely others criticized the idea of unrequited
exports or were unwilling to accept specific components or estimates of the drain. Imperial
152 apologists argued that there was no unrequited export surplus as the surplus in balance of
trade was offset by the need to pay for the invisibles in the balance of payments. Raymond Drain of Wealth Debate
Goldsmith agrees with Theodore Morison and Vera Anstey that exports were being paid
for and that India had become a sink for precious metals. Tomlinson agrees that there
was substantial import of treasure in the 19th century.
Table II
India, annual balance of payments on current account, 1869-70 to 1894-8
(millions, quinquennial averages)

Balance Net Balance Home Other All Balance of

Merchandise Treasure Visible Trade Charges Invisibles Invisibles Payments
Trade Imports (1+2) (4+5) Current Account
(3-6)
1 2 3 4 5 6 7
1869-73 -8.4 +14.2 -8.8 -15.6 -14.4 -10.2
1874-8 -6.4 +14.6 -9.3 -18.0 -27.3 -12.7
1879-83 -7.1 +16.7 -10.7 -17.7 -28.4 -11.7
1884-8 -9.2 +14.6 -12.3 -18.0 -30.3 -15.7
1889-93 -9.7 +15.5 -13.5 -19.4 -32.9 -17.4
1894-8 -5.6 +15.1 -13.9 -18.9 -32.8 -17.7

Note: A plus sign (+) indicates net exports of goods; a minus sign (-) indicates net imports of
goods and net exports of remittances, service charges and other invisibles.
Source: A.K. Banerjee, Aspects of Indo-British Economic Relations, 1818-1898, Bombay,
1982, Tables 34A and 40A.
Source: B.R. Tomlinson, The Economy of Modern India, 1860-1970, III, 3, Cambridge, 1993,
Cambridge online 2008, Table 1.3. p 16.
During the trade boom between 1909-10 and 1912-13 India imported Rs 1,174 million
worth of gold, including Rs 45 million worth of sovereigns which went into circulation.
India’s gold reserves increased by Rs 294 million. It also imported Rs 549 million worth of
silver, only a third of which was used for coinage. [Tomlinson, 2008: 15-17] India was
being paid for its exports but much of the bullion imported was hoarded or not put to
productive use. Morison stated that unrequited transfers were limited to the Home
Charges which were around twenty million rupees a year. This sum was less than two per
cent of the total value of exports at the end of the 19th century and under one per cent in
1913. Morison placed the India drain in 1910-11 at 36% of the Home Charges. This drain
was offset by the services provided by the British.
K.N. Chaudhuri has pointed out that the export surplus was offset by the administrative
expenses incurred outside India, the charges for freight and banking, the remittance of
profits by businessmen, the savings of civil servants and the interest on borrowed capital.
According to Chaudhari’s calculations during 1898-1903 the payment for debt and invisible
expenses amounted to 30 to 35 per cent of exports falling to 23 per cent during 1911-14.
He went on to assert that during this period the sums expended on invisibles and debt
payment in the current account of the balance of payments could not be more than five
percent of the national income. As for the Home Charges they averaged only about 1.8
percent of exports annually between 1898-1901 and declined to an average of 0.8 percent
during 1911-14. Therefore, the drain was not of much significance by the late 19th century.
Several scholars have argued that the drain should refer only to the unproductive debt or
unnecessary expenditure in the annual Home Charges and that it should be assessed in
relation to national income and not public revenue. According to T. Mukerjee (1972: 205)
during 1870-1900, the drain was only between .04 and .07 per cent of India’s national
income. Charlesworth (1982: 54-5) pointed out that even if all Home Charges were
regarded as unproductive, the drain would still ‘barely exceed 0.5 per cent of national
income’. Dasgupta has argued that Ranade recognized that British rule did lead to some
drain of wealth from India but this was neither the root cause of poverty nor the binding
constraint on economic growth in India. Preoccupation with ‘drain’ had the effect of
narrowing the focus of Indian economic thought [Dasgupta, 1993: 86]. 153
Colonial Economy Theodore Morison drew a distinction between economic and political debts but believed
that the 7 million pounds that India had to pay for its ‘political connections with England’
in 1910-11 was in return for maintenance of internal order and protection against external
aggression. Morison and others have argued that India borrowed in England at a lower
rate of interest than other foreign countries did. McLane has pointed out that in the early
years of the twentieth century, Japan paid 4.5 to 5 per cent on its foreign loans while India
paid about 3.5 per cent. The yield to British investors on Indian railways in 1907 was 3.87
per cent; on colonial railways, 4.0 per cent; on American railways, 4.5 per cent; and on other
foreign railways, 4.7 per cent. [McLane, 2003] While the railway or ‘productive’debt was
increasing, the ordinary or ‘unproductive’ debt was decreasing. The ordinary debt had included
the £12,000,000 owed to the stockholders of the old East India Company, the cost of
suppressing the mutiny, and expenses arising out of other wars. The ordinary debt stood at
£96,000,000 in1862; by 1897 it had been reduced to £72,721,161 or by more than 24
per cent. In the same period, the rate of interest paid on the debt declined from 4.543
per cent to 3.393 per cent. In consequence, the annual charge of interest declined by 50 per
cent not including exchange, or by 16 per cent including exchange. By 1909, the ordinary, or
unproductive debt had been reduced still further, to £37,700,000. [McLane, 2003]
Arun Banerji has criticized Chaudhuri for not having a clear concept of the drain and goes
on to argue that it is not of central importance. All the components of the Home Charges
were not objectionable and the calculations were inaccurate. Instead of identifying certain
payments as a drain ‘‘we may look at the entire spectrum of payments abroad out of
incomes generated domestically (and of savings made from them), effected by the owners
of such incomes and savings (or by their nominees) to defray their current or capital
expenses abroad. Varying elements of drain, such as have been discussed, may inhere in
many such payments.’’ [Banerji, 1982: 189]
Table III
Index of exports, imports, and treasure; percentages of imports, invisible and debt payments, and
Home Charges in the total export values; exports as percentages of total estimated agricultural
output, 1898-1914
Year Exports Imports Treasure Percentage of total exports Exports as
(Net Import) of Imports of Invisible of Home % of total
and debt Charges estimated
payment agricultural
output
1 2 3 4 5 6 7
1898-99 100 100 100 56 33 1.9 -
1899-00 97 103 124 59 34 1.8 -
1900-01 95 112 99 61 30 1.7 13.8
1901-02 111 121 87 59 35 0.6 16.6
1902-03 115 116 151 56 30 1.6 14.7
1903-04 136 127 225 50 28 1.1 18.5
1904-05 140 144 219 55 29 1.0 19.3
1905-06 143 169 154 64 33 0.8 20.3
1906-07 157 166 370 60 22 0.9 19.4
1907-08 157 193 351 70 23 1.0 25.6
1908-09 136 179 156 75 25 1.4 18.4
109-1910 166 172 297 59 34 1.0 19.3
1910-11 186 189 310 58 27 1.0 21.8
1911-12 202 201 410 56 24 0.9 25.4
1912-13 218 230 488 60 23 0.8 27.4
1913-14 221 264 346 69 21 0.8 29.7
Col.1: Index number of export value; Col.2: Index number of import value; Col.3: Index number of
net import of treasure; Col.4: Value of imports as percentages of exports; Col.5: Total invisible and
debt charges as percentages exports; Col.6: Home Charges as percentages of exports; Col.7: Value
of exports as percentage of estimated agricultural output in India.
Source: Y.S. Pandit, India's Balance of Indebtedness 1898-1913, Oxford, 1937; K,M. Mukherjee, Levels
of Economic Activity and Public Expenditure in India, Bombay, 1963, Table 3, Col. 6; Chaudhuri, K.N.,
‘India’s International Economy in the Nineteenth Century’, Modern Asian Studies, II, 1 (1968), pp. 31-50.
154 Source: Arun Banerji, Aspects of Indo-British Economic Relations, 1982, Table 37, p 203.
Banerji focuses on the transfer problem – the need for a sustained export surplus to meet Drain of Wealth Debate
remittance requirements over long periods of time. In India during 1858-1898 there was
the rigid compulsion to make transfers when the demand and price of exports was subject
to substantial fluctuations. He argues that if the annual transfers are large in relation to
public revenues, export values or national income and foreign capital is not available to
diminish the burden of transfer, the burden on the poor transfer or country becomes
onerous. [Banerji, 1982: 213-14]. As this was the case in India the transfer problem was
a serious issue. Banerji’s critique of a particular understanding of the drain is not a denial
of a drain since he later criticized both Bayly and Roy for not acknowledging it. [Arun
Banerji, 2005] However, in 2004 Bayly stated – citing Patrick O’Brien – that the transfer
of wealth from the non-European world contributed between 5% and 15% of the total
stock of capital for investment in Britain during the late 18th century. [Bayly, 2004: 174]

9.4 LEFT NATIONALIST VIEWS

After the East India Company took over the Diwani of Bengal in 1765 it had control over
the revenues of Bengal. As the revenue surplus of Bengal could be used to buy the
textiles and other commodities for sale in Europe it was no longer necessary to import
treasure into the country. The Company could earn a profit on the commodities it sold in
Europe apart from transferring a part of the surplus revenue. The revenue surplus was
also used to buy opium for sale to China to pay for tea and silk imported by Britain from
there. Increasingly opium was pushed into China because it eliminated the need to pay in
silver. Tan Chung has argued that the East India Company created the myth that opium
was necessary to balance the trade with China. For a long time before the 1820s raw
cotton was exported to China to pay for the tea that Britain imported but opium was very
lucrative. Opium, like cotton, was used for revenue transmission from India to Britain. In
fact, it served as ‘‘the midway station of revenue transmission.’’ [Chung, 1986: 126] The
value of the transfers from India was also crucial in sustaining Britain financially during
the Napoleonic wars. Esteban has argued that ‘‘without the Indian transfers Britain could
have required mounting foreign borrowing in 1772-1820, to seemingly unsustainable levels
after 1809.’’ [Esteban, 2001: 67]
Irfan Habib has estimated, based on the calculations of Shore and Grant, that the total
Gross National Product (GNP) of Bengal, Bihar, Banaras and the Northern Circars
amounted to under Rs 20 crores per year during the period 1784-89. Taking Holden
Furber’s estimate, based on prime cost in India, for the drain during 1783-84 to 1792-93,
Irfan Habib has calculated that the tribute amounted to 9 per cent of the GNP. [Habib,
1975: 28] Estimating the tribute to be about 4.70 million pounds on the basis of sale prices,
he calculated that it amounted to over 2 per cent of the British national income of 232
million pounds in 1801. As the total rate of capital formation in Britain was about 7
per cent of the national income during the early years of the Industrial Revolution, India
provided almost 30 per cent of the total national saving transformed into capital. [Habib
1975:29] The heavy extraction of tribute adversely affected the demand for British textiles
later since it reduced the income and purchasing power of large sections of the population.
[Habib, 1975: 39] Irfan Habib has suggested that the drain in 1882 amounted to Rs 1355
million – in 1946-7 prices – or 4.14 per cent of national income in that year. [Habib, 1985:
376] Paul Baran in The Political Economy of Growth estimated that about 10 per cent
of India’s gross national product was transferred to Britain each year in the early decades
of the twentieth century.
Foreign trade was by and large monopolized by the Europeans in the colonies. The invisible
earnings of the metropolitan country contained elements of a political tribute. Bagchi has
called some of this tribute ‘‘self-ransom’’ as in the case of the government debt contracted
for suppressing the revolt of 1857-1858. Invisible earnings were excessive because of
monopoly rents on business from which Indians were formally or informally excluded and
competition from metropolitan powers was restricted. Shipping, banking and insurance
was dominated by British managing agencies and companies. Bagchi has calculated the
annual surplus extracted from India and Burma by the British state and European 155
Colonial Economy businessmen. In the 1870s the surplus extracted was somewhere between a minimum of
£21.4 million and a maximum of £28.9 million; on the eve of World War I the minimum
was £52.9 million and the maximum was £65.3 million. [Bagchi, 2005: 241] Applying a
compound rate of interest of 4 per cent to the accumulating balances of unrecompensed
Indian surpluses – from the time they accrued to the year 1914 – leads to amounts varying
between 3,199,320 pounds and 3,779,264 pounds. Assuming 5% profits on imports and
20% on exports one gets the lower figure and the higher figure based on 10% profit on
imports and 25% on exports.
Table IV
Alternative Estimates of the Total Tribute Extracted and Profits Made by Europeans Connected
with India and Burma, 1871-1916 (in Thousands of Pounds)
Five Year Average 5% Profit on Imports (£) 10% Profit on Imports (£)
20% Margin 25% Margin 20% Margin 25% Margin
on Exports on Exports on Exports on Exports
1871-1876 21,472 23,309 23,322 25,159
1876-1881 24,519 26,825 26,634 28,940
1881-1886 29,223 32,085 31,946 34,808
1886-1891 28,822 31,686 31,824 34,689
1891-1896 28,779 31467 31,232 33,919
1896-1901 28,864 31664 31,514 34,315
1901-1906 42,907 46,837 46,661 50,591
1906-1911 51,943 53,580 57,239 58,876
1911-1916 52,914 58,963 59,203 65,252
Note: The totals have been arrived at by adding the Home Charges to the estimated margins on
exports from and imports into India, including Burma. The imports include net imports of treasure.
Sources: Statistics of British India, Vol. 2, Financial Statistics (Calcutta: Superintendent of
Government Printing, 1918); Statistics of British India, part 2, Commercial, 1908 and 1913
and Statistics of British India, Vol. 1, Commercial Statistics, 1918 (Calcutta: Superintendent
of Government Printing).
Source: Amiya Kumar Bagchi, Perilous Passage: Mankind and the Global Ascendance of
Capital, 2005, Table 17.1, p. 241.
According to Bagchi direct government intervention prevented the emergence of free
markets in land, labour, and capital. This facilitated the extraction of tribute. [Bagchi,
2005: 242-243] Roy’s appreciation of the open economy has been questioned by Aditya
Mukherjee and others. [Mukherjee, 2022; Banerjee, Das Gupta and Mazumdar, 2015]
Openness has been regarded as free trade imperialism by several scholars like Peter
Harnetty. As Sabyasachi Bhattacharya and P. S. Gupta have shown the British followed
a policy of ‘discriminatory interventionism’ which hurt Indian interests.
On the basis of historical time series data on trade Utsa Patnaik has estimated that the
transfer of resources from Asia and the West Indies amounted to 43% of gross domestic
capital formation in Britain in 1770, rising to as high as 86.4% in 1801. The transfers
amounted to 85.9% in 1811 and 74.6% in 1821 of Britain's capital formation. [Patnaik,
1990: 6] Mainstream British economic historians relying on the authoritative study of
British economic statistics by Deane and Cole did not take into account the significance
of re-exports in their calculations. This was justified for the later period when re-exports
were insignificant, but during the late 18th century they were of considerable importance.
Major studies using historical statistics put together by Deane and Cole perpetuated the
errors in the assessment of British trade. From about 3% of British GDP in 1770 the
transfers from Asia and the West Indies climbed to 6% of GDP by 1801. It was 6% in
1811 as well. These transfers almost doubled the investment rate based on domestic
savings. [Patnaik, 2000: 385-390.]
In Colonies and the Empire Sunanda Sen has offered qualified support to the nationalist
understanding of the drain of wealth. The claim that India’s exports were not paid for is
untenable since the exporters were paid through the exchange banks. She also argues
156 that the entire amount of the Home Charges could not be regarded as the drain of wealth
or political tribute from India since payment of interest on productive loans is a legitimate Drain of Wealth Debate
payment that even an independent country would have to make. However, she writes,
‘‘the practice of using the local tax revenue to settle the net export earnings within the
country imparted a deflationary bias in terms of aggregate demand in the economy.’’ The
unilateral transfer of tribute also created ‘‘a potential for income contraction.’’ [Sen, 1992:
18] She has classified the three different heads under which expenditures abroad can be
analysed as follows: (a) civil administration – items 3 and 5 (b) defence – item 4 (c)
productive expenditure and debt management of productive items – item 1 excluding (b)
plus item 2. Most of the expenditure of 18.6 million pounds under Home Charges in
1910-11 was spent on servicing past railway and irrigation loans. The relative importance
of the three categories was 1:1:3 in 1910-11. [See Table V]
Table V
Pattern of Overseas Expenditure under Home Charges: 1861-62 to 1913-14 (£ Millions)

Sl. . Items Annual Charges

Nos. 1861-62 to 1875-76 to 1898-99 to 1910-11
1874-75 1897-98 1913-14
1 2 3 4 5
1) Interest Charges and 5.7 7.9 9.4 11.1
debt management:
chargeable under
head of
a) railways and irrigation 3.5 5.3 6.9 8.8 (0.1)
b) other interest 2.2 2.6 2.5 2.3
2) Stores purchased in 1.1 1.2 1.6 1.0
England against revenue
and for railways
3) Civil Administration in 0.2 0.6 0.2 0.1
India Office (exclusing
pensions)
4) Army and Marine Charges 2.6 3.5 4.2 4.1
a) effective charges
including Home Charges 1.1
for British officials in
India
b) Non-effective charges 3.0
5) Pensions and furlough 0.9 1.7 2.3 2.3
6) Total expenditure under 10.5 14.9 17.7 18.6
Home Charges
Note: Figure in brackets in Column 5 refers to irrigation.
Sources: Dharma Kumar, ‘The Fiscal System’ in Cambridge Economic History of India
(1757-1920), Vol. II, ed. Dharma Kumar, p. 938 ( for Columns 2-4); Explanatory Memorandum,
annually submitted by the Under-Secretary of the State of India, cited in Theodore Morrison,
Economic Transition, p. 234 (for column 5)
Source: Sunanda Sen, Colonies and the Empire, India 1890-1914, 1992, Table 2.1, p. 29.

Sen argues that the values of the annual sales of Council Bills – after deducting import of
capital – are a credible measure of the financial transfers from India. During 1898-1908
an annual average of 19.8 million pounds was remitted abroad as unilateral transfer. This
amount exceeded the net export earnings from trade and treasure estimated at 17.3 million
pounds as annual average. The unilateral transfer during 1898-1908 constituted 2.3 percent
of India’s national income during this period. [Sen, 1992: 59]
Sen has also discovered a device ‘‘of accounting transfers’’ hidden in the budgetary
practices of the government in India. In 1867 a select committee of the British parliament
had recommended that ‘‘all capital expenditure on productive works supplied from revenue
should be treated in the accounts as if it had been borrowed, that a sum equal to that
which was thus supplied should be transferred from the ordinary debt to the productive 157
Colonial Economy public works debt, and that interest on that sum be charged on the works.’’ Sen has
italicised the word ‘as if it had been borrowed’ [Sen, 1992: 31]. As a result of this practice
the productive debt in India went up from 5.4 million to 159.3 million pounds between
1867 and 1897 and its proportion in the total debt went up from 6.4 per cent to 63.3 per
cent. Therefore, expenditure on servicing productive debt was for unproductive purposes.
The colonial government’s policy was designed to ‘‘camouflage the extent of public
borrowings to finance the politically sensitive and commercially unviable expenditures of
government.’’ [Sen, 1992: 32] Productive debt was ‘‘a surrogate for the amount spent
and borrowed in the past for unproductive purposes.’’ Revenue for financing public works
was used to subsidize unproductive expenditure and to retire unproductive debt. Therefore,
on this ground, the nationalist critique of the Home Charges and the drain from India is
justified.

9.5 RECENT ARGUMENTS FOR AND AGAINST DRAIN

In How British Rule Changed India’s Economy Tirthankar Roy has asserted that drain
was ‘‘a word posing as a theory.’’ [Roy 2019a:103] He acknowledges that India did make
a payment without adequate return between 1757/1765 and 1772/1784 when the East
India Company used the tax resources of Bengal to buy textiles for export. However, only
13 per cent of the state revenues of Bengal were used for export in 1763. Simon Digby
estimated that £1000 million was transferred between 1757 and 1815. Angus Maddison
lowered the figure to £100 million and Cuenca Esteban even lower to 40 million pounds.
Taking the lowest estimate as valid, and estimating the national income of India in 1800 as
100-150 million pounds, Roy asserts that the implied annual transfer was trivial. Secondly,
Roy claims that the business interests of Indian merchants spread over Africa, Southeast
Asia, and East Asia, were protected by the British Empire. The British tax-payers, who
paid on average ten times more than their Indian counterparts, in fact subsidized the
security of Indian capitalists abroad. Thirdly, as the Indian capital market was prohibitively
expensive the best option was to raise loans in London, the cheapest market in the world.
Naoroji was wrong in criticizing the only sensible way to fund development in India. If the
loans were sourced from India, India’s tax-paying peasants would have become much
poorer than they were. Fourthly, in 1900, foreign labour and foreign capital were employed
in modern industry, banks, and trading firms because many types of skilled labour were
unavailable in India. Although Roy accepts that the recruitment for top positions was both
wasteful and unfair, the waste was negligible. Taking the salaries of six thousand of the
highest paid officers he calculates the burden as just 0.03 per cent of national income in
1870. [Roy, 2019a: 105]
Like colonial scholars Roy denies that the drain was an issue. He argues that the
government did not spend on development because its tax base was limited. Debt-GDP
ratio rose from around 15-20% in the late nineteenth century to about 25 per cent in 1880,
but started falling thereafter. In the 1930s the ratio rose only because of the fall in national
income. The government was cautious about raising money in London because the
nationalists would have criticized the increase in the annual remittances in sterling. The
government in India was afraid of public opinion in both Britain and India. Roy, however,
does not address the issue about the payment of the export surplus from the Indian budget
through the Council Bill mechanism. He also does not regard India’s military expenditures
because of the World Wars as a burden or drain. The British took a hundred million
pounds of the wartime earnings of India – equal to the pre-War Home Charges for four
years – as a gift. [Patnaik, 2014: 21] Utsa and Prabhat Patnaik estimate that this gift
would amount to at least 1920 billion pounds at current prices and at 3 per cent interest.
[Patnaik & Patnaik, 2017: 122]
Roy does not accept that India’s savings were being siphoned away nor does he believe
that its control over monetary policy had serious negative consequences until the 1930s.
He believes that as two separate heads managed the budget and currency it forced both
parties to be conservative. In order to promote development London and Delhi would
158 have to work together to raise more debt but neither was willing to go against public
opinion. Roy argues that fiscal centralisation and public debt operations were British Drain of Wealth Debate
innovations. However, debt operations, ‘‘by tying Indian finance to British capital markets,
made sustaining capacity growth politically difficult. The regime was constrained, not by
fear of indigenous elite or conservatism, but by the contradictory nature of public finance.’’
[Roy 2019b: 82] Had the colonial government borrowed in India for investment it would
have disturbed trade and been more ‘‘expensive’’ and ‘‘inflationary’’. [Roy, 2019a: 110].
He also argues that while the revenue/GDP ratio rose in Britain from 7 per cent to 25
per cent during the four decades before the Second World War in India it remained at
about 6 per cent. [Roy, 2019b: 91]
Table VI
Scale of fiscal system, India and Britain compared

Indian revenue per Revenue, % of Revenue, % of Revenue per head

head as a ratio of British GDP, UK GDP, India (at 1873 prices),
revenue per head (%) India
1840 6.3 - - -
1850 7.6 - - -
1860 9.1 - - -
1870 12.9 7.2 7.0 0.27
1880 14.5 7.2 10.5 0.38
1890 9.4 7.2 8.3 0.30
1900 6.8 8.5 7.5 0.26
1910 7.5 9.1 6.7 0.28
1920 6.7 19.5 4.8 0.20
1930 3.6 19.1 7.9 0.35
1939 2.1 24.5 8.3 0.42

GDP (Gross Domestic Product)

Source: India, Statistical Abstracts of British India, Calcutta; The Bank of England’s Three
Centuries Macroeconomic Dataset, Version 2.3-30, June 2016;
http://www.namlofengland.co.uk/research/Pages/onebank/threecenturies.aspx.
Source: Tirthankar Roy, Australian Economic History Review, Vol. 59, No.1, March 2019,
Table 3, p. 91.
In the long-term the lack of development was because of the weak capacity to make
investments and on the methods adopted to manage the economic system. According to
Roy the resources of the state were limited not only because it was dependent on taxes
on land but also because of ‘‘its cautious approach to debt, commodity, and direct taxes.’’
Moreover, during the Depression it ‘‘became bankrupt’’ because British investors lost
interest in Indian securities. Only the integration of monetary and fiscal management, and
the ending of Britain’s control over the former could have provided a solution. This happened
too close to World War II to be immediately effective. [Roy, 2020: 257] In fact, even the
liberal John Maynard Keynes was unconcerned about the effects upon India of the manner
of financing the Second World War.
Writes Utsa Patnaik, ‘‘It was the additional war expenditure arbitrarily imposed on India
entailing forced savings three times higher at Rs 17.4 billion (£1.29 billion), that led to the
extreme compression of rural consumption in Bengal and claimed three million lives.’’
[Patnaik, 2018: 41] In Capital and Imperialism Utsa and Prabhat Patnaik have argued that
the budgetary expenditure of the government rose nearly eight-fold between 1939 and
1943. As three-quarters of the increase in expenditure was based on deficit financing and
monetizing the deficit it produced much greater inflation in India than in other countries. In
India the wholesale price index rose over three hundred per cent but in Britain only by
seventy per cent. It was rapid food inflation that led to the Great Famine in Bengal in
1943-44. [Patnaik & Patnaik, 2021: 201] The peasants, fishermen, artisans, and rural
labourers were made to bear the brunt of war through an engineered profit inflation. This
159
Colonial Economy method of war finance raised prices much faster than the incomes of these self-employed
petty producers. [Patnaik &Patnaik 2017: 149] Profit inflation was a deliberate policy of
curtailing mass consumption without which £1,600 million of extra resources could not
have been extracted from Indians during the war [Patnaik & Patnaik, 2021: 203].
Roy agrees that there was stagnation in Indian agriculture during British rule but this was
not because of high land taxes or even moneylender exploitation but because of geographical
and ecological factors. Colonial rule created inequalities. While those associated with trade
prospered, the peasants did not. [Roy in Inikori, 2022] But he does not engage with the
arguments of Utsa and Prabhat Patnaik that there was a systematic unilateral transfer to
Britain by using India’s tax revenue to pay for the net export surplus. Therefore, Britain
could run a trade deficit with India without creating any external payment liability as its trade
with a sovereign country like France did. Up to one-quarter to one-third of the annual net tax
revenues was used for purchasing export goods [Patnaik & Patnaik, 2021: 133] but the gold
and foreign exchange earned was appropriated by the colonial government. Arrangements
after 1861 retained the basic feature of the earlier direct system under the Company. The
merchandise export surplus continued to be ‘‘paid’’ to its colonized producers out of their
own taxes under the rubric ‘‘expenditure abroad’’ in the Indian budget. Therefore, Naoroji
and Dutt were right in criticizing ‘‘unrequited exports’’ from India. On the basis of the
figures for expenditure abroad Patnaik has concluded that the drain amounted to £ 596.757
million during the period 1837-38 to 1900-01 [Patnaik & Patnaik, 2021: 144].
Table VII (1)
Estimated Value of Drain of Wealth from India, 1765-1900
Period Absolute Value of Drain CUMULATIVE VALUE AT
(million) 5 PER CENT INTEREST
Upto 1947 Upto 2020
(Billion) (Billion)
1765-1836 270.2537 369.6476 12399.9
1837-1900 596.757 28.1677 992.135
1765-1900 867.011 397.8153 13392.035
GDP OF UK IN MILLION
1836 592
1900 1963
1947 10,544
Source: Utsa Patnaik and Prabhat Patnaik, Capital and Imperialism: Theory, History and the
Present, 2021, Chapter IX, ‘Colonialism Before the First World War’, Table 9.3, p. 145.

Table VII (2)

Estimated Value of Drain from India, 1765-1938
Period Absolute Value of Drain COMPOUNDED VALUE AT
(million) 5 PER CENT INTEREST
UUP TO 1947 UP TO 2020
\( BILLION) ( BILLION)
1765-1836 270.254 396.648 12399.9
1837-1900 596.757 28.168 992.4
1765-1900 867.011 397.816 13392.3
1901-1921 270.254 3.06 102.58
1922-1938 596.757 1.25 42.00
1765-1938 867.011 402.126 13536.88
GDP IN BILLION
UK INDIA
1836 0.592 N/A
1900 1.963 0.645
1947 10.544 5.186
2020 3071 3157
Source: Utsa Patnaik and Prabhat Patnaik, Capital and Imperialism: Theory, History and the Present,
160 2021, Chapter X, ‘Further on Colonial Transfers and Their Implications’, Table 10.5, p. 169.
Tax-financed transfer by the Company was direct and transparent. The Home Charges – Drain of Wealth Debate
which constituted one of the drain items – rose from 18 per cent in the early 1860s to 26
per cent of public expenditure by the late 1920s [Patnaik & Patnaik, 2017: 36]. However,
the payments to officials in sterling for pensions, leave allowances, and all administrative
charges between 1861 to 1934 amounted on average to only 12.7 per cent of the Home
Charges. [Patnaik & Patnaik, 2021: 146] Over 77 per cent of Home Charges, comprised
interest payments on debt arising mainly from military spending abroad and current military
expenditures, while 10 per cent went on purchase of government stores. Indian revenues
were made to pay for wars of conquest outside India very frequently. Sterling debt rose
between 1856 and 1861 from £4 million to £35 million because of the cost of suppressing
the Revolt of 1857. By 1901, total sterling debt stood at £135 million, over one-fifth of
British India’s GDP and eight times its annual export surplus earnings [Patnaik & Patnaik,
2021: 146-149].
During the late 19th century, the gold price of silver fell about 40 per cent in the world
economy but did not fall faster than any other gold price. Tomlinson therefore goes on to
argue that the world was not ‘‘acquiring India’s exports cheap by paying for them with a
devalued commodity.’’ [Tomlinson, 2008: 15-17] However, during the late 19th century as
the rupee declined in relation to sterling an additional burden of Rs 141 crore had to be
shouldered by India. .
Table VIII
Actual Payments against Council Bills and Estimated Payments with Constant 1871-1872 Rate
Period Council Bills Council Bills Period Three Year Totals
Constant Actual Council Bills Council Bills
Rs. Crore Rs. Crore Constant Actual
Rs. Crore Rs. Crore
1871-72 to 1875-76 76.139 79.913 1871-73 38.953 39.671
1876-77 to 1880-81 69.724 80.137 1874-76 37.186 40.242
OVER DECADE 132.787 145.187 1877-79 40.832 46.986
DIFFERENCE - 12.4 1880-82 50.626 59.131
1881-82 to 1885-86 78.036 93.176 1883-85 43.226 52.333
1886-87 to 1890-91 75.967 103.478 1886-88 43.334 59.679
OVER DECADE 154.003 196.654 1889-91 49.335 66.928
DIFFERENCE - 42.651 1892-94 44.591 73.374
1891-92 to 1895-96 79.625 127.675 1895-97 43.617 70.913
1896-97 to 1900-01 78.275 116.33 1898-1900 52.99 76.589
OVER DECADE 157.9 244.005 - - -
DIFFERENCE - 86.105 - - -
TOTAL 444.69 585.846 TOTAL 449.69 585.846
DIFFERENCE - 141.156 DIFFERENCE - 141.156
Source: Statistical Abstracts and R.C. Dutt, Economic History of India.
Source: Utsa Patnaik and Prabhat Patnaik, Capital and Imperialism: Theory, History and the Present,
2021 Chapter X, ‘Further on Colonial Transfers and Their Implications’, Table 10.2, p.154.
This was possible because total revenues doubled during this period. Utsa Patnaik argues
that if earnings from the export surplus had been credited to India even partially, ‘‘India
could have imported technology to build up a modern industrial structure much earlier than
Japan did after its 1868 Meiji revolution, or exported capital itself and not been obliged to
borrow.’’ The earnings from the export of raw cotton during the 1860s and 1870s could
have easily funded railway expansion and much more. The surplus earnings from commodity
exports between 1860 and 1876 amounted to 135 million pounds whereas investment in
railways and irrigation was only 26 million pounds. [Patnaik & Patnaik, 2021: 145]
Surplus budgets were being operated with a strongly deflationary impact on mass
purchasing power. The budgets were apparently balanced as the items constituting the
drain were mentioned in the budgets as Expenditure Abroad. The per capita consumption
of basic foodgrains declined because of income deflation caused by the transfer of surplus.
Also, income deflation facilitated diversion of land to non-food crops and greater export
161
of foodgrains. [Patnaik & Patnaik, 2021: 148-149]
Colonial Economy Table IX
British India, 1897-1946: Net Output, Imports, and Availability of Foodgrains
(five-year average except last year)

Period Net Net Net Population Output Availability

Foodgrain Foodgrain Foodgrain (million) Per Head Per Head
Output Import Availability (Kg) (Kg)
(000 ton) (000 ton) (000 ton)
1 2 3 4 5 6
1897-1902 44196.84 -475 43721.84 219.74 201.1 199
1903-1908 41135.94 -1105.83 40030.11 225.79 182.2 177.3
1909-1914 47292.59 -1662.83 45629.76 231.3 204.5 197.3
1915-1920 45298.31 -336 44962.31 232.81 194.6 193.1
1921-1926 44607.21 -203.67 44403.54 239.18 186.5 185.6
1927-1932 43338.46 858.83 44197.29 253.26 171.1 174.5
1933-1938 41786.79 1374.67 43161.46 270.98 154.2 159.3
1939-1944 42702.91 521.83 43224.74 291.03 146.7 148.5
Single Year
1945-1946 41397.13 596 41993.13 307 134.8 136.8

Source: G. Blyn (1966); U. Patnaik (2008)

Source: Utsa Patnaik and Prabhat Patnaik, A Theory of Imperialism,
Columbia University Press, 2017. Table 7.2, p. 102.

During the colonial period, the resources of tropical countries were appropriated by the
metropolitan countries at the cost of local foodgrain production and absorption. [Patnaik
& Patnaik, 2017: 100]
It has been estimated that between 1922 and 1938 India had a current account deficit of
382 million pounds since its commodity export surplus was 827 million pounds when the
invisible liabilities were 1209 million pounds. This resulted in a financial gold outflow of
260 million pounds and an additional debt of 122 million pounds. Two-fifths of the gold
inflow into Britain during this period came from India. [Patnaik & Patnaik, 2021: 168]
Utsa and Prabhat Patnaik have argued that Britain derived immense advantages from its
control over the export earnings and finances of India. First, it strengthened the position of
the British pound sterling as the key global currency and a stable medium for holding
wealth. Neither commodities, gold nor any other major currency could undermine the
pound. Second, it led to the long boom of the nineteenth century and the diffusion of
industrial capitalism across the globe, but not the colonies. Third, it kept up the level of
aggregate demand for world capitalism, because of the possibility of triangular trade through
the colonies. [Patnaik & Patnaik, 2017: 126-127]
India had a huge export surplus with Europe and North America from the late 19th century
onwards. Over two-thirds of India’s export surplus came from these regions by the 1920s.
S.B. Saul had pointed out earlier how this export surplus helped Britain manage its balance
of payments difficulties – financing more than two-fifths of Britain’s total deficits
[Patnaik, 2019: 303]. Large capital exports to the USA in particular would not have been
possible without siphoning off the foreign exchange earnings of India. According to Utsa
Patnaik while the revenues of the central and state government doubled between 1900-01
and 1925 – from a hundred crore rupees to two hundred and ten crore rupees the export
surplus more than trebled. She writes, ‘‘A higher share of the budget went to ‘pay’ producers
for their export surplus out of their own taxes, making the income-deflating impact even
more severe.’’ [U. Patnaik, 2019: 306]
As Britain faced economic difficulties after the First World War it sought greater control
over India’s monetary policy. In order to facilitate British economic recovery based on an
expansionary world economy Britain wanted to regulate gold flows to India. According to
Balachandran it was easier to induce deflation in India to prevent the disruption of global
expansion than to urge the USA to promote such an expansion. [Balachandran, 1996:
226] Britain intensified efforts to eliminate any residual use of gold as money in the colony.
162 Keynes had observed that gold flows to India ‘‘were counter-cyclical to the world
economy.’’ Gold flows rose during booms and fell during a slump. British policy in the Drain of Wealth Debate
1920s generated deflationary expectations and reduced gold imports. In the 1930s it
strengthened deflationary trends to boost the outflow of gold. According to Balachandran,
‘‘Indian gold exports eased Britain’s external liquidity pressures and exerted an
expansionary influence on the world economy during the Depression’’ [Balachandran,
2016: 93]. Moreover, the British ensured that there was no default on payment of debt
which necessitated tax increases or cuts in expenditure. The countries that defaulted
during the depression performed better than those that did not. [Balachandran, 2016: 89]

9.6 SUMMARY
To, sum up, there is no doubt that there were considerable unilateral transfers to Britain
during the colonial period. Although the nationalists tended to regard the Home Charges
as the equivalent of the annual drain of wealth from India even the liberals have accepted
that some expenses arose because India was a colony of Britain. Secondly, there is broad
agreement that the Council Bills were used by the exchange banks to pay exporters. In
that sense there were no unrequited exports from India. However, the invisible charges
were high and the exchange banks, shipping and insurance companies earned monopoly
profits. The broader idea of the costs and benefits of colonialism requires empirical evidence
that is difficult to find. And it has to be based on counterfactuals that vary considerably.
Tirthankar Roy and G. Balachandran have different assessments of colonial monetary
policy partly because of differences in assumptions and counterfactuals. Michael Edelstein
has argued that if there had been no trade with the Empire the British GDP would have
declined by 1 to 3 per cent in 1870 and 1913 respectively. Patrick O'Brien has countered
that independent countries need not have withdrawn from trade with Britain. [Gardner
and Roy, 2020: 103]
Thirdly, the need for annual remittance in sterling to pay interest on public debt created a
pressure to maintain a high level of exports which diminished the bargaining power of the
exporters. The problem of the terms of trade between primary commodities and industrial
goods is a more general issue which arises with or without colonial rule. Fourthly, the
British control of India’s monetary policy and the holding of surplus export earnings in
sterling in London limited the sums available for investment in India. This also led to the
contraction of money supply in India and the adoption of pro-cyclical policies during the
period of depression. Fifthly, we have to look at the consequences of the drain for stagnation
and mass poverty in India. Utsa Patnaik has argued that India became poor because
Britain took away 45 trillion dollars from India between 1765 and 1938. Liberals like Roy
have argued that India remained poor because the state was unable to increase taxes for
investments or borrow at home or abroad to increase agricultural output and productivity.
If nearly a quarter to a third of the annual budget of the Indian government had not been
used to pay Indian exporters there would have been no need to raise more taxes or
borrow money for investment. Finally, even if there are disagreements about the estimates
there was a substantial drain of wealth from India. In varying proportions all countries
under colonial rule suffered because of a transfer of surplus to the metropolis.

9.7 GLOSSARY
Home Charges Expenditure incurred in England by the Secretary of
State on behalf of India
Internal Drain Transfer of incomes from peasants to traders and
middlemen
Moral Drain Drain in the form of British civil and military official’s
enormous salaries and pensions
Unrequited Exports/transfers for which there is no reverse flow
Exports/Transfers of goods or Transfers finance in payment; often done
to settle past debts.
163
Colonial Economy
9.8 EXERCISES
1) Discuss briefly nationalist’s ideas on drain of wealth.
2) Provide critique of nationalist’s ideas on drain of wealth.
3) What are leftists’ views on drain of wealth?
4) Critically examine recent arguments pertaining to drain of wealth.

9.9 SUGGESTED READINGS

Austin, Gareth (2022), ‘‘‘More and More One Cog in the World Economic Machine’’:
Globalization, Development, and African Agency in British West Africa’ in Joseph Inikori
(ed), British Imperialism and Globalization, c. 1650-1960, Essays in Honour of
Patrick O’Brien, Boydell Press, pp. 135-169.
Bagchi, Amiya Kumar (2005), Perilous Passage: Mankind and the Global Ascendance
of Capital, Rowman & Littlefield Publishers.
Balachandran, Gopalan (1996), John Bullion’s Empire: Britain’s Gold Problem and
India Between the Wars, Curzon Press, London.
Balachandran, Gopalan (2016), ‘Colonial India and the World Economy, 1850-1940’, in
Latika Chaudhary, Bishnupriya Gupta, Tirthankar Roy and Anand V. Swamy (eds), A
New Economic History of Colonial India, Routledge.
Banerjee, Arindam, Chirashree Das Gupta and Surajit Mazumdar (2015), ‘Historiography
sans History: A Response to Tirthankar Roy’, Economic and Political Weekly, Vol. 50,
No. 35, August 29, pp. 124-132.
Banerji, Arun (1982), Aspects of Indo-British Economic Relations, Bombay.
Banerji, Arun (2005), ‘White Man’s Burden: India and Britain in the 19th Century’,
Economic and Political Weekly , Jul. 2-8, Vol. 40, No. 27, pp. 2973-2978.
Baran, Paul, (1956), The Political Economy of Growth, New York.
Bayly, Christopher (2004), The Birth of the Modern World, 1780-1914: Global
Connections and Comparisons, Oxford.
Bhattacharya, Sabyasachi (1965), ‘Laissez Faire in India’, Indian Economic and Social
History Review, 1.
Brezis, Elise S. (1995), ‘Foreign Capital Flows in the Century of Britain’s Industrial
Revolution: New Estimates, Controlled Conjectures’, The Economic History Review,
Feb., New Series, Vol. 48, No. 1 , pp. 46-67.
Chandra, Bipan (1963), The Rise and Growth of Economic Nationalism in India:
Economic Policies of Indian National Leadership, 1885-1905, New Delhi.
Chandra, Bipan (1991), ‘Colonial India: British versus Indian Views of Development’,
Review (Fernand Braudel Center), Winter, Vol. 14, No. 1, pp. 81-167.
Charlesworth, Neil (1982), British Rule and the Indian Economy, 1800-1914, London,
Macmillan.
Chaudhary, Latika, Bishnupriya Gupta, Tirthankar Roy and Anand V. Swamy (eds) (2016),
A New Economic History of Colonial India, Routledge.
Chaudhuri, K.N. (2003), ‘India’s International Economy in the Nineteenth Century: A
Historical Perspective’, in Balachandran (ed), India and the World Economy,
1850-1950, Delhi.
Chung, Tan (1974), ‘The Britain-China-India Trade Triangle (1771-1840)’, Indian Economic
and Social History Review, Vol. XI, No. 4, December.

164
Chung, Tan (1986), Triton and Dragon, Studies on Nineteenth Century China and Drain of Wealth Debate
Imperialism, Delhi: Gian Publishing House.
Dasgupta, Ajit K. (1993), A History of Indian Economic Thought, Routledge.
Drummond, I. (1974), Imperial Economic Policy, 1919-1939: Studies in Expansion
and Protection, London.
Esteban, Javier Cuenca (2001), ‘The British Balance of Payments, 1772-1820: India
Transfers and War Finance’, The Economic History Review, Feb., Vol. 54, No. 1 ,
pp. 58-86.
Gardner, Leigh and Tirthankar Roy (2020), The Economic History of Colonialism, Bristol
University Press.
Goldsmith, Raymond W. (1983), The Financial Development of India,1860-1977,
New Haven.
Gupta, P.S. (1987), ‘State and Business in India in the Age of Discriminating Protection’,
in Dwijendra Tripathi (ed), State and Business in India: A Historical Perspective,
Manohar, Delhi, pp. 157-216.
Habib, Irfan (1975),‘Colonialization of the Indian Economy, 1757-1900’, Social Scientist,
March, Vol. 3, No. 8, pp. 23-53.
Habib, Irfan (1985), ‘Studying a Colonial Economy without Perceiving Colonialism’,
Modern Asian Studies, Vol. 19, No. 3, pp. 355-381.
Harnetty, Peter (1972), Imperialism and Free Trade: Lancashire and India in the
Mid-Nineteenth Century, Vancouver.
Iyer, Vibha (2020), ‘Commodity Export Surplus, Council Bills and Sterling Debt’, Social
Scientist, March-June 2020, Vol. 48, No. 3/6 (562-565), pp. 55-66.
Maddison, Angus (1989), ‘Dutch Income in and from Indonesia, 1700-1938’, Modern
Asian Studies, 23,4, pp. 645-670.
Markovits, Claude (2017), ‘The Indian Economy and the British Empire in the Company
Period: Some additional reflections around an essay by David Washbrook’, Modern Asian
Studies, Vol. 51, No. 2, Special Issue: New Directions in Social and Economic History:
Essays in Honour of David Washbrook, March, pp. 375-398.
McLane, John (2003), ‘The Drain of Wealth and Indian Nationalism at the Turn of the
Century’, in G. Balachandran (ed), India and the World Economy, 1850-1950, Delhi.
Morison, Theodore (1911), The Economic Transition in India, London.
Mukherjee, Aditya (2022), ‘The Great Divergence: How Colonial India Made Modern
Britain’, in Aditya Mukherjee, Political Economy of Colonial and Post-Colonial India,
Delhi: Primus.
Naik, J. V. (2001) ‘Forerunners of Dadabhai Naoroji’s Drain Theory’, Economic and
Political Weekly, Nov. 24-30, Vol. 36, No. 46/47, pp. 4428-4432.
Patnaik, Utsa (1984), ‘Transfer of Tribute and the Balance of Payments in the CEHI’,
Social Scientist, No 12, December, pp 43-55.
Patnaik, Utsa (2000), ‘New Estimates of Eighteenth-Century British Trade and Their
Relation to Transfers from Tropical Colonies’, in K.N. Panikkar, Terence Byres, Utsa
Patnaik (ed), The Making of History: Essays presented to Irfan Habib, Delhi: Tulika,
pp. 359-402.
Patnaik, Utsa (2014), ‘India in the World Economy, 1900 to 1935: The Inter-War Depression
and Britain’s Demise as World Capitalist Leader’, Social Scientist, Vol. 42, No. 1/2
(January-February), pp. 13-35.
Patnaik, Utsa (2018), ‘Profit Inflation, Keynes and the Holocaust in Bengal, 1943-44’,
Economic & Political Weekly, October 20, vol. LIII, no 42, pp. 33-43.
165
Colonial Economy Patnaik, Utsa (2019), ‘Revisiting the ‘‘Drain’’, or Transfers from India to Britain in the
Context of the Global Diffusion of Capitalism’, in Shubhra Chakrabarti and Utsa Patnaik
(eds), Agrarian and Other Histories: Essays for Binay Bhushan Chaudhuri, New
Delhi.
Patnaik, Utsa (ed) (1990), Agrarian Relations and Accumulation: The Mode of
Production Debate in India, Delhi: OUP.
Patnaik, Utsa and Prabhat Patnaik (2017), A Theory of Imperialism, Columbia University
Press.
Patnaik, Utsa and Prabhat Patnaik (2021), Capital and Imperialism: Theory, History
and the Present, Monthly Review Press.
Rothermund, Dietmar (1992), India in the Great Depression, 1929-1939, Delhi.
Roy, Rama Dev (1987), ‘Some Aspects of the Economic Drain from India during the
British Rule’, Social Scientist, Mar., Vol. 15, No. 3, pp. 39-47.
Roy, Tirthankar (2019a), How British Rule Changed India’s Economy: The Paradox
of the Raj, Palgrave Macmillan.
Roy, Tirthankar (2019b), ‘State Capacity and the Economic History of Colonial India’,
Australian Economic History Review, Vol. 59, No.1, March, pp. 80-102.
Roy, Tirthankar (2022), ‘Imperialism, Globalization, and Inequality: The Indian Story’, in
Joseph Inikori (ed), British Imperialism and Globalization, c. 1650-1960, Essays in
Honour of Patrick O’Brien, Boydell Press, pp. 241-262.
Roy, Tirthankar (2022), An Economic History of India, 1707-1857, Routledge, second
edition.
Roy, Tirthankar (2020), The Economic History of India, 1857-2010, fourth edition,
Oxford University Press, Delhi.
Sen, Sunanda (1992), Colonies and the Empire, India 1890-1914, Orient Longman.
Sullivan, Dylan and Jason Hickel (2023), ‘Capitalism and extreme poverty: A global analysis
of real wages, human height, and mortality since the long 16th century’, World
Development, 161, 106026.
Tomlinson, B.R. (1975), ‘India and the British Empire, 1880-1935’, Indian Economic
and Social History Review, October, vol. 12: 337-77.
Tomlinson, B.R. (2008), The Economy of Modern India, 1860-1970, III, 3, Cambridge,
1993, Cambridge online.

166
 Colonial Economy
UNIT 10 COLONIAL ECONOMY AND ITS and Its Impact
IMPACT*
Structure
10.1 Introduction
10.2 Economic Consequences of the Advent of Colonialism
10.3 Deindustrialization and Industrialization
10.4 Agriculture: Taxation, Land Tenure and Stagnation
10.5 Tribute, Drain of Wealth and Colonial Transfers
10.6 Commercialization of Agriculture and Debt
10.7 Famines
10.8 Money and Finance
10.9 Literacy, Gender and Environment
10.10 Summary
10.11 Glossary
10.12 Exercises
10.13 Suggested Readings

10.1 INTRODUCTION
The debate about the economic impact of British Rule is as controversial today as it was
when Dadabhai Naoroji wrote Poverty and Un-British Rule in India and R.C. Dutt had
a famous dispute with Lord Curzon. While contemporary colonial scholars praised the
benevolent nature of empire the nationalists argued that India had been impoverished
because of British rule. In recent years liberal economists like Tirthankar Roy have criticized
the left-nationalist view of colonialism espoused by Irfan Habib and Amiya Bagchi. By
examining the impact of colonial rule on industry, agriculture, standard of living and different
strata of the population we can get a better idea of what British rule meant for India.

10.2 ECONOMIC CONSEQUENCES OF THE ADVENT

OF COLONIALISM
There has been considerable research on 18th century India exploring the economic
consequences of the decline of the Mughal Empire and the establishment of colonial rule
in India. Chris Bayly, Sushil Chaudhari, Rajat Datta and Prasannan Parthasarthy have
emphasized the dynamism of the economy of pre-colonial India – growing commercialization
of agriculture, artisanal production and the beginnings of capitalist development. Kaveh
Yazdani has marshalled a lot of evidence to argue that in regions like Gujarat and Mysore
there were possibilities of indigenous capitalist development in the eighteenth century.
There were obstacles too. [Yazdani, 2017] While there was accumulation of merchant
capital in Gujarat the state was not supportive; in Mysore the state promoted technological
development and ‘‘semi-modernization’’ but did not allow a powerful merchant class to
emerge. Nevertheless, asserts Yazdani, ‘‘an indigenous state-led process of forced
industrialization could have been possible in the absence of colonial intervention.’’ [Yazdani,
2020: 168] Tirthankar Roy has suggested that two distinct but weak forms of capitalist
economic development that emerged in the inland and coastal areas of India were
overwhelmed by superior European forms of organization. [Roy in Neal & Williamson,
2014] Yazdani and Menon conclude that as ‘‘nodes of growth were regional and
disaggregated’’ they could not transform the economy of South Asia. [Yazdani & Menon,
2020: 17]
Paul Bairoch has shown that India produced nearly a quarter of the world’s industrial
output around the mid-18th century but between 1750 and 1800 India’s share dropped by
4.8 percentage points, from 24.5 per cent in 1750 whereas China actually gained 0.5
* Dr. Rohit Wanchoo, St. Stephens College, University of Delhi, Delhi 167
Colonial Economy percentage points. Williamson has cited these figures to show that Indian manufactures
declined much before the inflow of manufactured goods into the country and much more
than the rest of the periphery. [Williamson, 2011: 77] Tirthankar Roy has asserted that
Western Europe was more advanced than India even before the Industrial Revolution.
[Roy 2021: 569] This is based on the work of Robert Allen, Patrick O’Brien, Broadberry
and Bishnupriya Gupta among others. However, Prasannan Parthasarthy has shown that
agricultural productivity in India was high and its textiles posed a serious challenge to
British textiles. The revolution in cotton textiles in Britain was a response to the
low-priced Indian goods. Washbrook also accepts that ‘‘without the spark fired by the
collision between India’s then-advanced and Britain’s then-backward textile industries,
one wonders whether the ‘revolution’ introduced by technological innovation at this time
would necessarily have happened.’’ [Washbrook in Yazdani & Menon, 2020: 141] Although
Parthasarthy has accepted that eventually India could not cope with the greater fiscal and
military resources of the Europeans he has marshalled a lot of evidence to show that the
economic conditions in India were robust and quite comparable. Washbrook acknowledges
the strength and sophistication of the financial institutions of pre-colonial India but denies
that India had even achieved the proto-industrialization stage marked by the emergence
of the putting-out system. [Washbrook in Yazdani & Menon, 2020: 135] Broadly speaking,
the level of inequality between Britain and India increased significantly only after the
British conquest and exploitation of India.

10.3 DEINDUSTRIALIZATION AND

INDUSTRIALIZATION
A major criticism of colonial rule was first that it led to the decline of traditional industry in
India and secondly that there was no development of modern industry to compensate for
it. Daniel Thorner’s reinterpretation of the Census data between 1881 and 1931 had
concluded that during this period there was no major de-industrialization and that the
occupational structure of India stood still. [Thorner, 1962] So the decline was primarily a
nineteenth century phenomenon. In the Indian Economic and Social History Review
Morris David Morris argued that an increase in population, per capita income and per
capita consumption of cloth could have increased the size of the domestic market for
cloth. Therefore, the output and employment in artisanal production need not have declined
despite the undisputed increase in the inflow of British textiles into India. Bipan Chandra
and Tapan Raychaudhuri argued that there was little evidence of any increase in per
capita income and the huge increase in imports and decline in spinning and weaving was
widely attested by different government sources. The slow growth in Indian agricultural
output and productivity because of heavy taxes and neglect of investment in agriculture
restricted the size of the Indian market. Even if imported yarns improved the competitive
capacity of the Indian weavers, they still could not compete with machine made cloth.
Weavers and spinners became dependent on the land and shifted to coarse cloth in order
to survive. By comparing the data in the Buchanan-Hamilton survey in Gangetic Bihar
collected between 1809-13 and the Census of 1901 A. K. Bagchi concluded that secondary
sector employment declined from 18.6% to 8.5%. [Bagchi, 1976: 509, 512]
Table Ia
Industrial Population in Selected Bihar Districts Around 1809-1813
District Absolute Number of the Population Percentages of the Industrial
Dependent Population to the Total Population
Assumption (a) Assumption (b) Assumption (a) Assumption (b)
Patna-Gaya 985,947 655,551 29.3 19.5
Bhagalpur 454,965 286,000 22.5 14.2
Purniya 874,860 587,860 30.1 20.2
Shahabad 446,775 287,285 31.5 20.2
Total 2,762,457 1806,776 28.5 18.6
Source: Bagchi, ‘De-industrialization in Gangetic Bihar’, Essays in Honour of S.C. Sarkar,
168 1976, Table 3, p. 509.
 Colonial Economy
Table Ib
and Its Impact
Population Dependent on Industry in 1901 I Selected Bihar Districts
District Total Industrial Population Percentage of the Industrial
Population Population to Total Population
Unadjusted Adjusted Unadjusted Adjusted
Patna 1,624,985 279,093 179,695 17.1 11.1
Gaya 2,059,933 287,732 187,016 14.0 9.1
Shahabad 1,962,696 346,400 228,051 17.7 11.6
Monghyr 2,068,804 281,325 155,459 13.6 7.5
Bhagalpur 2,088,953 222,296 115, 618 10.7 5.5
Purnea 1,874,794 220,506 121,533 11.8 6.5
Total 11,680,165 1,638,652 987,752 14.3 8.5

Unadjusted figures are raw census figures. The adjusted figures are calculations by the author.
Source for Tables a&b: Bagchi, Amiya Kumar, ‘De-industrialisation in Gangetic Bihar’, in
Amiya Kumar Bagchi, Essays in Honour of S.C. Sarkar, 1976, Table 4, p. 512.

Between 1794 and 1895, Amiya Bagchi showed that the gross material output of an
average inhabitant of Bengal and Bihar had declined by about 20 per cent. [Bagchi,
2021: 20] By the end of the 19th century Indian textile imports averaged more than
two billion yards a year and were valued at nearly 20 million pounds annually. India
absorbed more than 40% of the total cloth exports of Britain by the end of the century.
However, there were enormous regional variations. In Madras Presidency the number
of handlooms did not decline but rose over the course of the nineteenth century. The
weavers worked the looms for fewer hours and there was a shift towards coarse
cloth. The handlooms survived by adapting to local needs and preferences using
mercerized yarn and artificial silk, producing cotton sarees with silk borders,
handkerchiefs and angavastrams, and finding export markets in Sri Lanka and South
East Asia for the Madras lungis. What is more important, Specker linked the fortunes
of the weavers to fluctuations in the output and relative prices of raw cotton and cloth
as well as grain prices and cloth. [Specker, 1989] In Central India, according to
Harnetty, the handloom industry was able to retain about forty per cent of the domestic
market until the early years of the twentieth century. As the railways began to expand
their network in Rajasthan after the First World War handlooms there began to face
competition, albeit later than other regions. By this time, Indian mills had become
major players and they were competing with handlooms in Rajasthan.
Indrajit Ray argues that there is insufficient data to examine deindustrialization in
terms of inter-sectoral job transfers. He argues that it is easier to empirically examine
deindustrialization in terms of a decline in an industry not compensated by growth of
a modern sector in the same product. Twomey has estimated that employment fell by
300,000 between 1790 and 1830. On the other hand, Indrajit Ray has argued that the
decline in employment in the textile industry of Bengal took place after the mid-1820s
because of setbacks in both the overseas and domestic markets. Slow and steady
decline took place only thereafter. Employment declined by 65,000 in the 1820s, 144,000
in the 1830s, 160,000 in the 1840s and 192,000 in the 1950s. Ray has estimated that
563,000 workers in aggregate lost their jobs between 1810 and 1859. [Ray, 2011: 70]
He concludes that while at least one million gained employment in textiles in Bengal
during the eighteenth century only 563,000 lost jobs in the first half of the nineteenth
century. Although British discriminatory policies affected Bengal textile exports in
the period up to the 1820s the subsequent decline in textile production in Bengal was
due to the technological changes brought about in the nineteenth century.

169
Colonial Economy Table II
Change in Annual Employment Scenario in Bengal, 1815-1859
Year Silk Cotton Salt Ship- Indigo Total Change in
building Employment Employment
1795-9 88,775 179,905 88,020 928 460,080 817,7-8 -
1800-4 84,040 198,931 90,303 4,508 522,478 900,260 (+)82,552
1805-9 97,255 141,798 108,567 2,400 833,419 1,183,439 (+)238,179
1810-14 155,536 126,745 113,639 5,400 868,826 1,270,146 (+)86,707
1815-19 158,109 210,128 114,655 5,589 994,757 1,483,238 (+)213,092
1820-4 202,242 145,589 123,785 2,341 1,040,878 1,514,835 (+)31,597
1825-9 219,267 56,856 121,212 1,429 1,364,060 1,762,824 (+)247,189
1830-4 188,460 -21,616 149,887 1,074 1,230,295 1548,100 (-)565,803
1835-9 237,786 -53,573 93,947 1,626 1,146,199 1,425,985 (-)122,115
1840-4 232,730 -181,250 98,861 2,443 1,387,268 1,539,955 (+)113,970
1845-9 227,670 -221,108 90,504 0 1,054,268 1,151,334 (-)388,621
1850-4 211,227 -317,480 59,044 0 596,865 549,656 (-)601,678
1855-9 233,271 -468,213 57,289 0 526,861 349,208 (-)200,448
Source: Indrajit Ray, Bengal Industries and the British Industrial Revolution, 1757-1857,
2011, Table 8.1, p 252.
Ray has estimated that employment opportunities increased in salt manufacturing,
shipbuilding, indigo dye manufacturing, in raw and wrought silk, and in the export sector of
cotton textiles during the period 1757-1829. Additional employment opportunities came to
1.62 million in aggregate for the early nineteenth century. [Ray, 2011: 247] When Bengal
suffered heavy industrial decay during 1830-59 about 1.21 million industrial workers lost
their jobs. Of these, about 78 per cent represented jobs that had been created during
1795-1829 so that the net loss of employment opportunities comes to 0.27 million for the
period 1795-1859 as a whole. State discrimination led to the demise of salt manufacturing
and shipbuilding while market forces downsized cotton and silk textiles. Both market
forces and discriminatory policies affected deindustrialization. [Ray, 2011: 254]
Tirthankar Roy has highlighted that Indian handlooms began to grow by the early twentieth
century because they responded to challenges and opportunities. The less skilled weavers
declined but high skilled weavers like Momins and Padmasalis were able to survive by
innovating and adapting. There was growing concentration of weavers in towns where
they could avail of the services of specialist dyers and bargain with creditors and merchants
for better terms. The weavers adopted imported yarns, gradually adopted technological
innovations like the fly shuttle and eventually the powerlooms. The handlooms had nearly
one third of the domestic market in textiles by the 1930s in terms of market share. In
terms of the total market value, it was even higher because handlooms had diversified into
higher value products. [Roy, 1993] Also, market forces and technological and organizational
changes affected traditional industries like leather as tanneries emerged and local leather
workers and collectors of hides declined. The railways and imported brass sheets led to
the rise of the brassware industry. [Roy, 1999]
The traditional industries of India declined in the period 1820-1880 in most parts of the
country in varying degrees, but particularly between 1850 and 1880. What is important to
note is that the nationalist critique of British colonial policies was not just – or so much –
that the traditional industries had declined but that there was no compensatory development
of modern industries in India like in Britain. While modern industry emerged in the late
19th century the progress was limited. There are several criticisms. First, that the
development of a vast railway network in India was done in the interests of Britain.
Investors in the railways were guaranteed five per cent on capital regardless of
performance. The network lines were laid and freight rates determined in order to facilitate
manufactured imports into India and to promote agricultural exports. Secondly, railway
wagons and locomotives were imported from Britain and there was no encouragement of
an iron and steel industry in India. Thirdly, a policy of free trade was followed. Tariff
protection would have helped Indian cotton mills compete against Lancashire. India was
170
not able to protect its infant industries ? a strategy that was adopted by late industrializing Colonial Economy
countries like Germany and the USA. Finally, there was neglect of investment in irrigation and Its Impact
that would have increased agricultural output and the purchasing power of the people. As
Rajat Ray has argued had India been independent industrialization would have begun by
the early years of the twentieth century and the pace of industrialization would have been
much higher.
The initial rise of modern industries like cotton and jute in the late 19th century was followed
by the growth of iron and steel, sugar, paper and cement in the post-World War I period
after the introduction of tariff protection. This has been hailed as a positive development
and evidence of change in the nature of colonialism. [Dewey, 1978] Aditya Mukherjee
has argued strongly that these trends were not the result of colonialism but a break with it.
[Mukherjee, 2008: 25] Import substitution industrialization after the 1920s was led by
indigenous capitalists. Britain’s staple industries became less competitive after the First
World War and there was a decline in the volume of world trade and the export of capital.
Industries in India grew during the Depression years while those in the developed capitalist
countries were affected by lack of demand. As there was a huge decline in the demand
and price of agricultural commodities considerable merchant capital deployed in the
movement of agricultural commodities in India moved into industries like sugar and paper
during the 1930s. However, as Bagchi had argued in Private Investment in India the
growth of industries in the interwar period was affected by a demand constraint. As the
entire period of the 1930s was marked by the depression it was not possible to expand the
railway network, invest in irrigation or in heavy industry like steel because of weak demand.
Tomlinson has argued that even European capitalists in India had considered setting up of
a second steel plant to rival that of the Tatas but were deterred by the absence of demand
for steel.

10.4 AGRICULTURE: TAXATION, LAND TENURE AND

STAGNATION
The British turned from trade to Empire after the mid-eighteenth century. Their initial
revenue experiments were devastating. The auctioning of revenue farming rights to
the highest bidders led to exploitation and oppression of the peasants of Bengal. The
ruthless collection of revenue in 1769-1770 despite famine and soaring price of rice
led to the death of one-third of the population. Rajat Datta has critiqued this estimate
because the famine affected only parts of Bengal and in the six worst affected districts
about one point two million people died. [Datta, 2000: 262] The peasants were in
distress also because the British prevented the flight of peasants from the land which
was possible earlier. [Wilson, 2005] The Permanent Settlement of Bengal in 1793
fixed the land revenue to be paid by landlords in perpetuity. The objective was to
encourage productive investment in agriculture by creating private property in land,
avoid the expense of revenue collection and create a class of loyal allies. It led instead
to the rise of a class of rent-receiving intermediaries and the decline in the incentive
to invest by both the landlord and the peasant.
The ryotwari settlement, introduced in Madras and Bombay Presidencies sought to
eliminate any rights of intermediaries between the state and the peasants. This was to
increase the revenue of the state based on the measurement and output of land and
purportedly provide incentives to the peasant to invest by eliminating intermediaries. In
the Mahalwari areas of North West India revenue was collected from groups of
peasants in one or more villages, sometimes through headmen. The nationalist argument
was that British land taxes were fixed very high in the non-zamindari areas and because
of the inflexibility in the payment of the qists or instalments the peasants were forced to
borrow. [Amin, 1984] In all areas regardless of the revenue system the frequent shortfall
in rain, or even early and late arrival of the monsoon, compelled the peasants to borrow
from the local moneylenders to meet their commitments. The ubiquitous moneylender
was essential for the timely collection of revenue and exposed the peasant to usurious
exploitation, debt bondage and eviction from land. [Bose, 1993; 1994] 171
Colonial Economy Dharma Kumar had argued that the proportion of land revenue to total revenue was
declining over the course of the 19th century. Land taxes were around 10 per cent of
agricultural output in the 1860s and fell to 2 per cent by the end of colonial rule.
[Chaudhary, Gupta, Roy & Swamy, 2016f: 102] This has been contested by Mridula
Mukherjee with regard to Punjab – a region noted for agricultural growth and progress.
First, the incidence of land revenue at constant prices (1913-14) from 1906-07 to
1938-39 shows that there is no consistent trend of decline in the incidence of land
revenue per acre in the twentieth century. Second, the proportion of land revenue to
net assets or net income was considerable. The proportion was above 20 per cent in
twelve out of 23 years between 1906-07 and 1929-30. It was between 15 and 20
per cent for five years, 10 and 15 per cent for two years and between 5 and 10 per
cent for four years. [Mukherjee, 2005: 5] Mukherjee has brought out the fact that
although land revenue was a tax on land and not persons settlement officers were
told that they could impose a higher tax on tracts where the paying capacity of the
people was high because of the inflow of pay and pensions from the government.
[Mukherjee, 2005: 25] Also she has argued that the burden of land revenue cut into
the subsistence of the smaller landholders. More than half the landholders in Punjab
owned less than five acres.
Table III
Land Revenue as Percentage of Net Income: Settlement Officers’ Estimates
(British Punjab: Different Districts)
District Tehsil or Tract Old Assessment New Assessment
1 Sheikhupura Canal irrigated ex-Raya villages 22.5 22.7
Ex-Khangah Dogran old villages 19.3 29.5
2 Gujranwala Gujranwala Tehsil 16.7 25
3 Muzaffargarh All Tehsils 32.3 34.5
4 Shahpur Lower Jhelum Canal Colony 22.1 31.7
5 Lyallpur Whole District except Rakh Branch 13.1 19.3
6 Jhang Lower Chenab Colony 14.7 20.3
7 Hissar Sirsa Tehsil 13.6 20.4
8 Montgomery Dipalpur and Pakpattan Tehsils 20.8 31.9
9 Dera Ghazi Khan All Tehsils 20.8 27.5
10 Multan All Tehsils 27.1 36
11 Ambala All Tehsils 10.7 25.1
12 Hissar All Tehsils except Sirsa Tehsil 24.5 33.3
13 Rohtak All Tehsils except Sirsa Tehsil 27.5 34.5
14 Karnal All Tehsils except Sirsa Tehsil 30 39.03
15 Ludhiana All Tehsils except Sirsa Tehsil 19.5 26.2
16 Ferozepore All Tehsils except Sirsa Tehsil 13 19.9
17 Lahore All Tehsils except Sirsa Tehsil 14 22
18 Amritsar All Tehsils except Sirsa Tehsil 20 25.5
19 Gurdaspur All Tehsils except Sirsa Tehsil 28 34
20 Hoshiarpur All Tehsils except Sirsa Tehsil 19.5 25.5
21 Jullundur All Tehsils except Sirsa Tehsil 16.5 22.5
22 Sialkot All Tehsils except Sirsa Tehsil 26 31.5
23 Rawalpindi All Tehsils except Sirsa Tehsil 25.05 31
24 Attock All Tehsils except Sirsa Tehsil 27 33
25 Jhelum All Tehsils except Sirsa Tehsil 27 33.3
26 Miranwali All Tehsils except Sirsa Tehsil 26 33
Sources: Punjab Revenue (Land Revenue) Department Proceedings, October, 1925, Nos.
13-14, Enclosure 1 and 2, IOR P/11505; Mridula Mukherjee, Colonializing Agriculture: The
Myth of Punjab Exceptionalism, 2005. Table 1.3, p. 13.
The nationalists and Marxists have argued that agriculture stagnated because of the high
taxes collected by the state, high rents paid by peasants who hired land, high levels of
indebtedness and the dominance of merchants who appropriated the benefits of agricultural
172
production.
 Table IV Colonial Economy
Percentage Change in Acreage and Yield per Acre in Different Regions of India and Its Impact
Acreage Yield Per Acre
All Crops Food Grains Non-Food All Crops Food Grains Non-Food
Grains Grains

(1) (2) (1) (2)

A. Total change between 1891-95 and 1941-46
1 British India +16.27 +25.55 +19.84 +6.45 -7.3 +52.96
2 Greater Bengal -3.37 +0.79 -29.54 -12.85 -22.17 +54.55
3 Madras +16.45 +3.89 +82.95 +46.02 +30.35 +79.84
4 Greater Punjab +51.69 +46.42 +94.38 +35.60 +19.24 +74.20
5 United Provinces +28.18 +27.93 +29.12 +2.62 -8.63 +29.32
B. Total change between 1921-26 and 1941-46
1 British India +5.54 +7.08 -.87 -1.45 -9.69 +25.24
2 Greater Bengal +4.87 +6.47 -9.71 -7.86 -12.96 +24.45
3 Madras +3.51 -1.66 +23.61 +.92 -4.99 +9.45
4 Greater Punjab +7.25 +7.09 +8.48 +13.58 +4.91 +39.54
5 United Provinces +5.00 +4.39 +7.41 -2.10 -14.47 +28.88
Sources: Computed from Blyn (1966: Appendix Table 4C)
Source: Amiya Bagchi, Colonialism and Indian Economy, 2010, Table 2.5, p. 41.
Table V
Food Availability
Net Food Net Import Population Per Capita
Production (million tonnes) (millions) Availability
(million tonnes) (oz. per day)
1900-4 55.6 -1.1 289 18.6
1910-14 61.9 ?2.0 314 18.8
1920-4 58.4 0.8 312 18.6
1930-4 57.7 1.2 348 16.6
1940-4 57.6 0.5 397 14.4

Sources: India, Statistical Abstract Relating to British India (London: HMSC and Calcutta
Government Press, various years); Tirthankar Roy, The Economic History of India,
1857-2010, Fourth Edition, 2020, Table 3.12, p. 83.
Tirthankar Roy acknowledges that per capita food availability declined in the 20th century.
For him this was the outcome of limited taxation, low investment by the state, poor
rainfall, inadequate irrigation and ‘‘water famines.’’ [Roy, 2021, 2022] Irrigation was
confined to areas in Punjab, UP and Madras and private investment in wells was
inadequate. Commercialization of agriculture was limited despite enormous growth in
agricultural exports between 1860 and 1914 as monsoon dependent areas did not
contribute much to agricultural exports. Non-food crops were less than 15 per cent of
net area sown at their peak. In 1914, the agricultural export to agricultural
value-added ratio was about 14 per cent – excluding tea export – and the agricultural
export to agricultural production ratio was about 7-10 per cent. [Chaudhary, Gupta,
Roy & Swamy, 2016f: 108] Even in 1936 only twenty per cent of the cultivated area
was irrigated.

173
Colonial Economy Table VI
Agriculture Acreage Summary
Total Area Net Per net area sown (%)
Acres area Food Rice Wheat Oilseeds Non food Cotton
sown grains total
(as %) total
British India
1895 539093648 36.5 92.4 35.2 11.6 7.1 91.1 4.9
British India
1904 554234736 37.6 89.7 33.4 11.3 7.0 10.2 5.7
British India
1913 618927145 36.2 89.8 35.1 10.6 6.7 11.3 6.3
British India
1920 667361372 34.1 87.9 35.1 11.0 6.9 13.4 6.9
British India
1936(1936-7) 625149442 35.6 89.6 35.3 10.6 5.6 12.8 6.9
Madras 80104239 39.6 81.8 31.2 0.0 16.5 10.9 7.8
Bombay 48721608 57.8 70.8 6.5 5.9 7.6 23.3 13.2
Bengal 49254596 49.7 97.0 89.9 0.6 4.5 10.9 0.2
UP 67848920 53.3 105.4 18.7 21.1 2.8 7.0 1.9
Punjab 61001600 45.7 80.2 3.7 33.7 4.1 28.8 10.4
Bihar 44324194 44.9 101.4 50.0 5.7 7.7 2.0 0.2
CP & Berar 63004800 39.0 82.7 23.1 12.8 9.4 18.8 16.1
Assam 35484800 18.6 85.9 82.3 0.0 6.5 3.1 0.5
Sind 30027932 15.7 84.2 25.1 19.8 4.3 21.8 19.0
Orissa 20594776 31.5 95.2 79.4 0.1 4.8 1.2 0.1

Source: Latika Chaudhary et al. in Latika Chaudhary, Bishnupriya Gupta, Tirthankar Roy and Anand
V. Swamy (eds), A New Economic History of Colonial India, Routledge 2016, Table 7.1, p. 104.

Less than 5 per cent of the total budget was allocated for irrigation although it increased
yields significantly.
Expenditure on railways decreased from 23 per cent in 1894 to 15 per cent in 1935 but
investment in irrigation did not increase. More than 85 per cent of expenditure on productive
works was devoted to railways between 1894 and 1919. The colonial state did not increase
investment in irrigation and agriculture because railway expansion directly helped British
investors and manufacturers but irrigation did not. Most scholars agree that levels of both
public and private investment in India were low.
Table VII
Estimates of Investment, 1901-46

1901-13 1930-9 1940-6

Per cent of Gross Capital formation
Gross Capital Formation 100.0 100.0 100.0
Construction 61.2 67.5 70.2
Machinery 29.8 29.2 28.5
Agriculture 2.0 3.5 4.6
Other 27.8 25.7 23.9
Inventory 9.0 3.3 1.4
Public Sector 32.7 22.2 18.0
Private Sector 67.3 71.8 82.0
Per cent of National Income
Gross Capital Formation 6.93 9.35 7.30
Net Capital Formation 4.00 2.84 2.12
Public Investment 2.23 2.08 1.32

Tirthankar Roy, The Economic History of India, 1857-2010, Fourth Edition, 2020,
Table 3.14, p. 87.
174
What the authors of A New Economic History of Colonial India argue is that the Colonial Economy
colonial state was ‘‘conservative’’ and that it taxed little and spent little. This is asserted and Its Impact
even more emphatically by Tirthankar Roy [2019 a] in How British Rule Changed India’s
Economy. (For details see Table VI, Unit 9 of the present Theme.)
Also, there were ecological and technological constraints which limited irrigation expansion
during the colonial period. Elizabeth Whitcombe pointed out some of the negative
consequences of irrigation but Ian Stone found it led to higher growth rates. Rohan D’Souza
has highlighted the difficulty in controlling the flow of the Mahanadi river in Orissa.
[D’Souza, 2006] After independence, however, the investment in irrigation rose significantly
and produced positive results.

10.5 TRIBUTE, DRAIN OF WEALTH AND COLONIAL

TRANSFERS
Colonial economists accept that there was a certain drain of wealth from India in the form
of tribute but it was a small price to pay for an efficient civil service, the peace maintained
by British rule, access to the cheapest money market in the world and the introduction of
railways and telegraphs. K. N. Chaudhury has estimated that the drain did not exceed
1.5 % of the value of India’s exports during the early twentieth century. [Chaudhury,
1968] Tirthankar Roy, like Theodore Morrison, regards the drain of wealth as marginal
since Home Charges were primarily the annual remittances in sterling on productive
investments. As the British government had mis-classified unproductive debt as productive
debt Sunanda Sen has argued that the Home Charges were a reasonable measure of
the drain from India. She estimated that the drain for the 1898-1908 period averaged 19.8
million pounds annually or 2.3 per cent of national income. [Sen, 1992: 59] (For details see
Table V, Unit 9 of the present Theme.)
The nationalists also criticized the huge expenditure on the large British Indian standing
army which was used to expand or defend the Empire, often at the cost of the Indian
exchequer. Nationalists like Dadabhai Naoroji and R.C. Dutt criticized the British for the
drain of wealth from India. After gaining control of the revenues of Bengal in 1765 the
British stopped importing specie into India for the purchase of Indian goods. Revenue
surplus was used to buy Indian textiles for sale abroad or to transfer funds or treasure to
Britain. The revenues of Bengal were also used to procure opium for sale to China to pay
for Britain's imports of tea and silk. This is known as the triangular trade. The transfers
during this period contributed substantially to the capital formation in Britain during the
early stages of its industrialization. Irfan Habib has estimated that unrequited transfers
from India in 1801 amounted to 30 per cent of British domestic savings available for
capital formation. About 66 per cent to 84.06 per cent of British capital formation out of
domestic savings between 1801 to 1821 came from tropical colonies in Asia and the West
Indies. [Patnaik, 2019: 285] Utsa and Prabhat Patnaik assert that there was no real
agricultural revolution in Britain before the onset of the industrial revolution. [Patnaik &
Patnaik, 2021: 114] Unrequited imports from the tropical colonies provided Britain foodstuffs
and raw materials without creating any balance of payments issues despite export of
capital to America and other newly settled temperate regions.
Utsa and Prabhat Patnaik argue that up to one-quarter to one-third of the annual net tax
revenues was used for purchasing export goods but the gold and foreign exchange earned
was appropriated by the colonial government. Indian tax revenues from land revenue and
salt were used to pay for the net export surplus. Britain could run a trade deficit with India
because it did not create any external payment liability. With a sovereign country like
France this would not have been possible. Tax-financed transfer by the Company was
direct and transparent. This mechanism under the Company remained even after 1861.
As the merchandise export surplus continued to be ‘‘paid’’ to its colonized producers out
of their own taxes Naoroji and Dutt were right in criticizing ‘‘unrequited exports’’ from
India. On the basis of the figures under the rubric ‘‘expenditure abroad’’ in the Indian
budget Utsa Patnaik has concluded that the drain amounted to £ 596.757 million during
175
Colonial Economy the period 1837-38 to 1900-01. [Patnaik & Patnaik, 2021: 144] (For details see Table VII
(1&2), Unit 9 of the present Theme.)
Utsa Patnaik argues that if earnings from the export surplus had been credited to India
even partially, ‘‘India could have imported technology to build up a modern industrial
structure much earlier than Japan did after its 1868 Meiji revolution, or exported capital
itself and not been obliged to borrow. The Indian railways could have been built several
times over from India’s own exceptionally high external earnings during the raw cotton
boom of the 1860s and 1870s. Between 1860 and 1876, commodity export surplus earnings
totalled £135 million, whereas railway and irrigation investment were only £26 million.’’
[Patnaik & Patnaik 2021: 145] Surplus budgets were being operated with a strongly
deflationary impact on mass purchasing power. As the items constituting the drain were
included under Expenditure Abroad the budgets appeared to be balanced. Income deflation
reduced the producer’s consumption of basic staple food grains. It also enabled allocation
of more land to non-grain crops for export and greater export of foodgrains. It was income
deflation that led to steady decline in per capita food grain absorption in British India.
[Patnaik & Patnaik 2021: 148-149]
India had a huge export surplus with Europe and North America from the late 19th century
onwards. Over two-thirds of India’s export surplus came from these regions by the 1920s.
S.B. Saul had pointed out earlier how this export surplus helped Britain manage its balance
of payments difficulties – financing more than two-fifths of Britain’s total deficits. [Patnaik,
2019: 303] Large capital exports to the USA in particular would not have been possible
without siphoning off the foreign exchange earnings of India. According to Patnaik while
the revenues of the central and state government doubled between 1900-1901 and 1925 –
from a hundred crore rupees to two hundred and ten crore rupees the export surplus more
than trebled. She writes, ‘‘A higher share of the budget went to ‘pay’ producers for their
export surplus out of their own taxes, making the income-deflating impact even more
severe.’’ [Patnaik, 2019: 306] Moreover, the British also took a hundred million pounds of
the wartime earnings of India-equal to the pre-War Home Charges for four years – as a
gift. [Patnaik, 2014: 21]

10.6 COMMERCIALIZATION OF AGRICULTURE AND

DEBT
In the early years the British used extra-economic coercion to promote the cultivation of
opium and indigo. The peasants were forced to sell opium at a low price fixed by the
Company which had a monopoly over opium. Peasants were given loans and advances to
grow indigo and were subjected to harsh and cruel punishments by planters for not meeting
their requirements. [Chaudhuri, 1984] In later years peasants took to production for the
market to meet their obligations. This has been called the rent, revenue and credit squeeze.
Jute was a crop that helped the small holding peasantry of East Bengal to survive. Sugato
Bose, Sumit Guha and Omkar Goswami have pointed out that there were periods of
prosperity as well as of decline for peasants with marketable surpluses. Despite the
domination of merchants and moneylenders, rich peasants arose in several cotton, jute,
wheat and rice producing areas of the country but they constituted a thin stratum in the
countryside. Omkar Goswami and Sugato Bose also focus on the emergence of
sharecropping and landless agricultural labour. Inequality grew as there were many who
lost land to the rich peasant moneylenders. Moreover, the level of agricultural output and
productivity remained low at the aggregate level; after an initial spurt productivity levelled
off even in the Punjab. Calculation of total factor productivity growth for 1900-1946
showed that the contribution of yield to agricultural income growth was negligible. [Roy
2019a: 17]
The colonial state tried to prevent the sale of land to moneylenders by the indebted peasants
by various protective laws like the Deccan Agriculturalists Relief Act of 1879 and the
Punjab Land Alienation Act of 1900-01. Acts of 1859, 1885 and 1928 in Bengal protected
tenants with occupancy rights – those who had been cultivating plots of land consecutively
176
for twelve years and had rent receipts to prove it in courts. In the Permanently settled Colonial Economy
areas a layer of rent-receiving intermediaries got an unearned increment but the direct and Its Impact
producers had lower incentives to increase productivity. In fact, Banerjee & Iyer have
argued that the zamindari areas had a negative impact on investments even after
independence and land reforms. Anand Swamy argues that the Bengal Tenancy Act of
1885 ‘‘strengthened the position of substantial landholders in the village vis-à- vis the
zamindar, but the status of the lowest tier of the agrarian hierarchy was not altered.’’
[Swamy, 2011: 145] Roy and Swamy have claimed that these laws actually limited private
property rights in land and even raised the cost of credit in the countryside. In the Madras
Presidency officials argued that it reduced the supply and increased the cost of borrowing
money. Interest rates were high because loan recovery via the courts was too costly.
[Roy & Swamy, 2016: 60]
Owing to the existence of inter-linked factor markets peasants were in a weak bargaining
position and their earnings were low. Further, not only shortages of foodgrains but the rise
in their price relative to the cash crops – particularly during famines-adversely affected
the peasants. Roy has argued that during the colonial period ‘‘inequality increased between
land-based and land-dependent occupations and urban industry and services: peasants,
artisans, landlords and laborers did not see significant change. On the other hand,
occupations employing financial, commercial, and human capital saw a significant rise in
productivity.’’ [Roy in Inikori 2022: 252] Inequality, stagnation, high taxes and indebtedness
often led to peasant resistance and revolts. [Stokes, 1986; Guha, 1982] These revolts
were against the colonial state as well as zamindars and moneylenders.The famous Indigo
Rebellion of Bengal took place because of the growing gap between the price of rice and
indigo in the 1850s. It was also because expanded indigo cultivation encroached on the
alluvial lands on which the peasants wanted to grow rice. [Kling, 1966; Nadri, 2016].

10.7 FAMINES
The average life expectancy in India which was 25 years for 1821-1871, fell to about 20
in 1871-1921 due to the unusual level of famine and influenza deaths, rising to about 35 in
1951[ Roy, 2019a: 3] About thirty to forty million people died during famines in the second
half of the 19th century India. [Sheldon, 2009: 74] Estimates of Sullivan and Hinkel are
even higher. People died not only because of lack of food but due to malaria, cholera or
malnutrition. As the state was more interested in grain exports than in the food requirements
of the people it resulted in mass starvation. Little relief was provided and the railways did
not mitigate the effects of food shortages until the early years of the twentieth century.
As regards the famine of 1876-78 land revenue rates and the process of their revision
before and after the famine ‘‘created an economic shock at a time of extreme vulnerability’’.
[Hall-Mathews, 2005: 214] Although the Famine Commission blamed the Marwaris,‘‘their
exploitation itself was so symbiotic with the revenue system that there is no logic in
attacking one and not the other.’’ Also, individual and local agency was very important.
Temple, who had controlled mortality in Bihar in 1874 by spending six million pounds, only
spent about 1.59 million pounds in Bombay later. [Hall-Mathews, 2005: 177] A uniform
famine policy replaced ‘‘local autonomy with paradigms designed to justify suffering.’’
The 1901 famine in Bombay Presidency saw worse mortality and disruption than
1876-78, despite considerable improvements in organizational efficiency.
The major famines of 1896-97 and 1899-1900 also caused a fodder famine and nearly a
third to a half of the cattle perished in the famine affected regions. The loss of cattle
reduced productivity and income due to the loss of manure and decline in availability of
butter, milk and ghee. There was also a shift to less labour-intensive subsistence crops
like jowar instead of wheat which required several ploughings. Pre-famine level productivity
levels became harder to attain. [Mishra, 2013] Vinita Damodaran has pointed out that
there was also the erosion of traditional means of sustenance and customary patterns of
life that made millions vulnerable to famines. Traditional relationships regarding irrigation
and water-harvesting in south Bihar declined because local zamindars refused to clean
canals and ponds and maintain traditional irrigation systems over the course of the nineteenth 177
Colonial Economy century owing to the decline in their incomes.Agrarian distress, droughts and famines led
to the migration of people to urban industrial centres like Bombay and Calcutta. About 1.5
million people migrated as indentured labour to work on plantations and farms in far flung
areas after the 1830s after slavery was legally banned. [Tinker, 1974; Sen, 1992] An
estimated 29 million people left India for Southeast Asia and lands around the Indian
Ocean and South Pacific between c. 1840 and 1930. [Balachandran, 2016d: 96]

10.8 MONEY AND FINANCE

The preoccupation with British policy of free trade imperialism and the struggle against
British manufacturing interests became less important after the First World War when
Britain’s traditional industries began to decline and it allowed a certain measure of tariff
protection. While Lancashire continued to fight a rearguard battle against Indian mills, as
Basudev Chatterjee has shown, the importance of financial interests rose. Britain went
off the Gold standard after the war in 1919 and only returned in a modified form in 1925.
As economic controls and protectionism grew Britain tried to maintain its position as a
major financial centre by creating the Sterling Area and emphasizing Imperial Preference
to protect its economic interests. Manipulation of the exchange rate between the rupee
and the pound sterling became important.
Balachandran has argued that Britain allowed destabilizing short-term capital movements
and insisted on honouring its debt obligations which more than exposure to foreign trade
‘‘explains why India was always a passive victim of trade and economic shocks originating
overseas.’’ [Balachandran, 2003: 3] Centralizing the surplus earnings from foreign trade
also hastened the decline of the indigenous bankers and their networks. [Balachandran,
2016: 90] More independent policies could have diversified the economy based on the
stimulus provided by the First World War. But for the deflationary policies imposed on
India by Britain in the 1930s India may have done as well as Latin American countries
and Japan. [Balachandran, 1996: 228] As repayment of interest on loans in pound sterling
had the highest priority it led to regressive taxes, accentuated the impact of a trade shock
on incomes and consumption and necessitated expenditure cuts and tax increases worsening
the impact of a fall in the price of India’s exports. [Balachandran, 2016: 89]
The Indian sub-continent’s total export surplus earnings from the world excluding UK in
1913 had amounted to fully 40 per cent of the total of UK’s trade deficits with the world.
By 1928, this share declined to 26.5 per cent and fell sharply further to only 7.1 per cent
by 1935. In effect the foundation of the entire structure of Britain’s long imperium was
destroyed with the decline in export earnings of its colonies. [Patnaik, 2014] The full
effects of the structural collapse were masked owing to the enormous outflow of distress
gold from India as millions of small producers, especially the peasantry, faced ruin with
declining agricultural prices and pro-cyclical contraction in public spending. They were
forced to sell what little assets they had: 3 billion rupees or £236 million worth of gold left
India between 1931 and 1937. During the Second World War the British deliberately
curtailed mass consumption in order to extract 1600 million pounds of extra resources.
[Patnaik & Patnaik, 2021: 203]

10.9 LITERACY, GENDER AND ENVIRONMENT

Growing sensitivity to literacy, caste, gender and the environment have also impacted
assessments of colonial rule. On the basis of data from 1880 to 1930 Latika Chaudhury
has highlighted that Indian primary school enrolment (14 per cent in 1930) was lower than
Brazil (22 per cent), Japan (61 per cent), Mexico (37 per cent) and Chile (56 per cent).
[Chaudhary, 2016b: 164] Even the better enrolment figures for Bombay and Madras
were below the average for other developing countries. On the other hand, the enrolment
in secondary education was comparable to that of developed countries like France. While
literacy of the Brahmins was 33% and that of the depressed classes was 1.6 % in 1931.
Literacy among the depressed classes was 5% in Bengal but only 0.5% in U.P. As late as
178 1931 the Government of India allocated less than 1 rupee per person to education and
public spending accounted for 0.74 per cent of national income. Government expenditures Colonial Economy
in British India were lower than in the Indian Princely States, other less-developed countries and Its Impact
like Brazil and Mexico, and British dependent colonies.This is true in absolute terms and
as a proportion of the total budget. For example, the Indian Princely States allocated 10
per cent of their budget to human capital, foreign underdeveloped countries averaged 6
per cent and the Indian government 3.5 per cent. [Chaudhary, 2016b: 173] Although
under investment in public education was a problem, caste and religious heterogeneity
also affected private investment.
Table 9,,I
Employment Rate (Pupil/School-age Population)

1891-92 1901-03 1911-12 1921-22 1931-32 1941-42

All Recognized Institutions
BRITISH INDIA 9.6% 10.8% 16.0% 20.9% 30.2% 34.8%
Bengal 12.7% 13.5% 24.4% 26.2% 36.2% 43.7%
Bihar & Orissa - - 15.5% 15.0% 18.4% 22.3%
Bombay (Including Sind) 14.0% 14.9% 20.7% 30.9% 39.7% 54.1%
Central Provinces & Berar 7.0% 8.9% 13.4% 15.8% 19.4% 21.4%
Madras 11.8% 12.9% 18.6% 27.5% 41.0% 46.7%
Punjab 4.8% 6.0% 10.6% 17.8% 33.9% 29.8%
United Provinces 3.1% 5.2% 8.8% 14.2% 20.1% 21.9%
Primary Schools
BRITISH INDIA 8.1% 8.9% 13.0% 17.0% 23.6% 27.1%
Bengal 10.7% 11.0% 17.7% 20.5% 28.2% 34.2%
Bihar & Orissa - - 13.0% 13.5% 15.6% 17.6%
Bombay (Including Sind) 12.8% 13.4% 18.6% 27.5% 34.9% 46.2%
Central Provinces & Berar 5.7% 7.4% 10.9% 12.5% 14.3% 15.4%
Madras 10.3% 10.9% 16.6% 24.4% 37.4% 42.2%
Punjab 3.2% 3.7% 7.0% 10.3% 13.6% 12.9%
United Provinces 2.2% 4.1% 7.2% 12.2% 16.5% 16.6%
Secondary Schools
BRITISH INDIA 1.4% 1.7% 2.4% 3.3% 5.7% 6.3%
Bengal 1.8% 2.2% 5.1% 4.7% 6.0% 6.6%
Bihar & Orissa - - 1.2% 1.2% 2.3% 4.1%
Bombay (Including Sind) 1.1% 1.3% 1.8% 2.7% 3.8% 5.8%
Central Provinces & Berar 1.2% 1.4% 2.4% 3.2% 4.8% 5.7%
Madras 1.4% 1.8% 1.8% 2.7% 2.9% 3.7%
Punjab 1.6% 2.1% 3.3% 7.2% 19.2% 16.1%
United Provinces 0.8% 1.0% 1.4% 1.6% 3.0% 4.1%
Arts & Professional Colleges
BRITISH INDIA 0.05% 0.06% 0.09% 0.16% 0.23% 0.35%
Bengal 0.06% 0.09% 0.23% 0.31% 0.33% 0.47%
Bihar & Orissa - - 0.04% 0.05% 0.08% 0.13%
Bombay (Including Sind) 0.05% 0.08% 0.12% 0.26% 0.38% 0.57%
Central Provinces & Berar 0.01% 0.01% 0.03% 0.05% 0.10% 0.16%
Madras 0.08% 0.08% 0.09% 0.17% 0.21% 0.29%
Punjab 0.02% 0.06% 0.12% 0.20% 0.43% 0.46%
United Provinces 0.04% 0.04% 0.08% 0.10% 0.16% 0.32%

Latika Chaudhary, ‘Caste, Colonialism and Schooling: Education in British India’, in Latika
Chaudhary, Bishnupriya Gupta, Tirthankar Roy and Anand V. Swamy (eds), A New Economic
History of Colonial India, Routledge, 2016, Table 10.1, p 165.
The position of women declined during the colonial period because of a decline in mortality.
Early marriage prevented many women from ‘‘taking up the new wage-earning
opportunities that appeared in towns and cities far away from home. Growing family size
made their economic value smaller and lives at home harder than before.’’ [Roy, 2019a:
112] Fewer women went to school whether at the beginning of the period or at the end.
Between 1881 and 1951, work-participation rate fell from 43% of the population to 39. 179
Colonial Economy The male participation rate fell from 63 to 54%, and women’s participation fell from 31 to
23%. [Roy, 2019a: 124] However, women were well represented in the formal sector
despite the prohibitions of the Factory Acts and restrictions on women working in
underground coal mines. According to Samita Sen women constituted 15-20 per cent of
the workforce in textile mills and a half or more of the workforce in mines and plantations
in the early 1920s.Their numbers began to decline in the 1930s. [Sen, 2008: 95] A process
of excluding women from the modern industrial workforce which began after the 1920s
continued for decades even after independence. [Sen, 2008: 103]
Scholars like Ramchandra Guha and Mahesh Rangarajan have emphasized how the
revenue-maximizing and forest policies of the state led to commercial forestry, decline in
diversity of forest trees, restrictions on the use of forest resources by local communities
and tribes and erosion of customary rights. Pallavi Das has collected data about the rising
demand for wood to make sleepers for the railways averaging 1800 to 2000 sleepers per
mile. It was more economical for the Madras Railway to use locally procured firewood
rather than imported coal. [Das, 2015: 74] Deforestation reduced access to nuts, berries,
firewood, medicinal plants, small game and timber for local communities and aroused
resentment and protests and even arson and rebellion. Over the course of the 19th century
forests were cut to meet the needs of the iron smelters and sugar boilers in Tamilnad
there by reducing the resources available for self-provisioning. [Parthasarathy in Inikori,
2022]. Dalits, Paraiyars specifically, kept goats and sheep and even on occasion cattle
and horses. Any changes restricting the rights of labourers to own animals increased their
vulnerability to poor harvests or bad years. During the Madras famine of 1876 to 1878 a
British official observed that the labouring classes of South India ate fish, snails, frogs,
field-rats, game of every description, fowls, goats, sheep, bullocks and pigs. The bulk of
these animals were likely to have been obtained or maintained through self-provisioning.
Kathleen Morrison has argued that deforestation near Vijaynagar was higher in the early
sixteenth century than in the colonial period. In northern Karnataka Vodda construction
workers were often compelled to work without payment and sacrifices for pre-colonial
reservoirs had to be borne disproportionately by women and depressed caste men. Despite
regional variations it is clear that the process of resource extraction, extension of the
arable and utilization of forest resources intensified during the colonial period. It led to
what Neeladri Bhattacharya has called villagization or more broadly an agrarian conquest
in Punjab. Over time it resulted in sedentarization of the population as pastoralists were
encouraged or compelled to became cultivators. Ajay Skaria has observed the decline in
the status of tribal groups in the Dangs region adjoining Baroda in Gujarat and Benoy
Chaudhuri has noted the reduction of tribals to landless labourers or tenants in North
Bengal.

10.10 SUMMARY
Colonial and liberal economists have a more positive assessment of the economic impact
of colonialism. Goldsmith has argued that countries that remained independent like Turkey
or Ethiopia did not experience much growth. Recent assessments of the railways in India
have argued that they reduced the cost per ton mile, were the largest employer in the
modern sector, achieved productivity increases, reduced the grain price dispersion by at
least twenty per cent between 1860 and 1920 [Andrabi & Kuehlwein, 2010] and increased
real agricultural income by approximately 16 per cent when the railroad network was
extended to the average district. [Donaldson, 2018; Bogart & Chaudhary, 2016e] The
cost benefit analysis done by Davis and Huttenback and Patrick O’Brien focuses on the
rate of return on investments in the colonies. These studies do not assess the use of
colonial export surpluses for Britain’s balance of payments, the advantages of cheap food
and raw materials and transfer of surplus or the benefits of controlling India’s monetary
policy. The Dutch cultivation system of the mid-19th century which forced villagers to
produce sugar and coffee yielded around a third of Dutch – not Javanese-government
revenue. [Gardner & Roy, 2020: 122] The farmers of West Africa got a higher proportion
180 of export revenues than those in settler or plantation economies but they still had to deal
with unequal exchange when marketing their produce. [Austin, 2022: 160-161] Although Colonial Economy
there was an increase in per capita income and the heights of Ghanains rose during the and Its Impact
colonial period the relatively low tax and low expenditure pattern of tropical Africa restricted
possibilities for growth.
There is no doubt that colonialism had a retardative influence on the Indian economy.
That there was a drain of wealth from India, that India could not support domestic industries,
that the country could not default on debts unlike sovereign countries, that it could not
develop a modern banking system are important markers of its subordination and
exploitation. There were constraints imposed by climate and geography given the technology
of the colonial period but low public investment is a major factor for low growth
acknowledged even by liberal economists. The strongest indictment of colonialism is that
it systematically drained India of its resources, distorted India’s growth to make it a valuable
appendage of Britain, neglected investment in India, imposed deflationary policies,
particularly during the depression years and kept India in poverty at a time when the
developed countries were growing rapidly.

10.11 GLOSSARY
Home Charges Expenditure incurred in England by the Secretary of State on
behalf of India.
Unrequited Exports/transfers for which there is no reverse flow ofgoods
Exports/Transfers or finance in payment; often done to settle past debts.

10.12 EXERCISES
1) Assess impact of colonial rule on Indian economy.
2) In what ways did the colonial policies led to the destruction of traditional Indian
industries?
3) Do you agree that colonial policy hindered the growth of modern industries in India?
4) Discuss the recent debates pertaining to impact of colonial rule in India.
5) ‘Western Europe was more advance than India even before the industrial revolution’
and ‘Indian manufactures started showing signs of decline much before the inflow of
manufactured goods into the country’. Comment.
6) Discuss the impact of colonial rule on Indian textile industry.
7) Discuss briefly deindustrialization of Indian industries during the colonial period.
8) ‘Colonial policies hindered the growth of Indian agriculture.’ Comment.
9) In what ways did the revenue settlements were oppressive in nature?
10) ‘Drain of wealth was a small price paid for an efficient civil service and peace
maintained by the British.’ Comment.
11) In what ways did commercialization of agriculture enhanced debt burden?
12) Colonial policies before and after famines created ‘economic shock’. Examine.
13) In what ways did free trade imperialism hindered Indian industrial interests?
14) In what ways did the colonial rule impacted literacy and gender employability?

10.13 SUGGESTED READINGS

Amin, Shahid (1984), Sugarcane and Sugar in Gorakhpur: An Inquiry into Peasant
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India’, The Journal of Economic History, June, Vol. 70, No. 2, pp. 351-377. 181
Colonial Economy Austin, Gareth (2022), ‘‘‘More and More One Cog in the World Economic Machine’’:
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Swamy (eds), A New Economic History of Colonial India, Routledge.
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Chaudhary, Latika, Bishnupriya Gupta, Tirthankar Roy and Anand V. Swamy (eds) (2016a),
A New Economic History of Colonial India, Routledge.
Chaudhary, Latika (2016a), ‘Agriculture in Colonial India’, in Latika Chaudhary, Bishnupriya
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182 Chaudhary, Latika (2016b), ‘Caste, Colonialism and Schooling: Education in British India’,
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New Economic History of Colonial India, Routledge. and Its Impact

Chaudhuri, Benoy Bhushan (1984), ‘Rural Power Structure and Agricultural Productivity
in Eastern India, 1757-1947’, in Desai, Rudolph and Rudra, (ed), Agrarian Power and
Agricultural Productivity in South Asia, Delhi.
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Control in Eastern India, Delhi: Oxford University Press.
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Bengal c.1760-1800, Delhi: Manohar.
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Vol. 108, Nos. 4-5, pp.899-934.
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History of India, Delhi: Oxford University Press.
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University Press.
Ghosh, Shami (2014), ‘The ‘‘Great Divergence’’, Politics, and Capitalism’, Journal of
Early Modern History, pp. 1-43.
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Delhi.
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in British India, Delhi.
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Colonial Economy Kling, Blair (1966), The Blue Mutiny: The Indigo Disturbances in Bengal,
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Colonial India, 1896-1900’, Journal of Social History, Summer, Vol. 46, No. 4,
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Morrison, Kathleen (2014), ‘Conceiving Ecology and Stopping the Clock: Narratives of
Balance, Loss, and Degradation’, in Mahesh Rangarajan and K. Sivaramakrishnan (eds),
People, Animals, and Mobility in India’s Environmental History, Delhi: Oxford
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Morrison, Kathleen D. (2010), ‘Dharmic Projects, Imperial Reservoirs, and New Temples
of India: An Historical Perspective on Dams in India’, Conservation and Society,
8(3): 182-195.
Mukherjee, Aditya (2002), Imperialism, Nationalism and the Making of the Indian
Capitalist Class, 1920-1947, Delhi.
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Delhi: Primus Books.
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184 January-February, pp. 13-35.
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Colonial Economy Sen, Samita (2008), ‘Gender and Class: Women in Indian Industry, 1890-1990’, Modern
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186
 Famines and Epidemics
UNIT 11 FAMINES AND EPIDEMICS*
Structure
11.1 Introduction
11.2 Famines
11.2.1 Famines: Causation and Culpability
11.2.2 Impact of the Colonial Political Economy
11.2.3 Reports, Commissions and Relief Measures
11.2.4 Outcome and Analysis: Crime, Altruism and Moral Economy of a Famine
11.3 The Scourge of Epidemics
11.3.1 Malaria, Cholera, Plague and Social Malaise
11.3.2 The Epidemic Diseases Act, 1897
11.4 Famines, Epidemics and Colonial Policies
11.5 Summary
11.6 Glossary
11.7 Exercises
11.8 Suggested Readings
11.9 Instructional Video Recommendations

11.1 INTRODUCTION
The history of disease, epidemics, famine and scarcity has been linked to natural and
human causation. There are very few countries in the world which may actually claim to
have escaped the vagaries of nature or the trail of misery left behind by famines and
epidemics. The political economy also plays a crucial role in determining the response in
such a situation. This Unit will look at the intertwined nature of famines and epidemics,
explore the idea whether famines were caused by dearth of resources or was it a matter
of uneven or skewed distribution of the same. Failure of rains and consequently of crops
was not a new phenomenon and occurred in India in the ancient period as well. There are
hymnal references found in Rig Veda to invoke rain in order to prevent drought from
damaging the crops and produce. In medieval times, the rulers made several provisions
for the affected subjects to deal with the effects of the famine. So the question arises
whether the policies formulated during the colonial period differed in any fundamental
way from the interventions made by the erstwhile rulers? The role played by the British
imperial state in preventing, salvaging or at times perpetuating the situation will be the
subject matter of this Unit.
After reading the Unit, you will be able to understand the co-relation between colonial
political economy and famine; know about the role of the state in perpetuating or preventing
famines; learn about famine commission, reports, codes and relief measures; and understand
the link between famine and epidemics.

11.2 FAMINES
The word ‘famine’ is derived from the Latin word ‘fames’ which implies hunger or a
condition of ‘extreme general scarcity of food’ resulting in excess mortality from starvation
or hunger induced illness. The etymology and meaning of words signifying famine vary by
language. In Italian the word for famine, carestia, is derived from caritas, and signifies
dearness. This alludes to the intensity of a famine. If the price of basic foodstuffs increases
for a prolonged period, then it’s a serious famine. In German, hungersnot connotes hunger
associated with a general scarcity of food. The most common terms for famine in the Irish
language are gorta (starvation) referring to the infamous 1840s drochshaol (the bad
times). In pharaonic Egypt, the standard word for famine (hkr) was derived from ‘‘being
hungry’’ (Srivastava, 2014: 1; Grada, 2009: 4-5).

* Dr. Rachna Mehra, School of Global Affairs, Dr. B.R. Ambedkar University, Delhi 187
Colonial Economy 11.2.1 Famines: Causation and Culpability
According to Morris D Morris, there is no one way to ‘formulate a definition that would be
adequate for all policy purposes’. Famines are also associated with droughts but it is
neither a direct nor an inevitable consequence of drought even though these words are
synonymously used in administrative practice (Morris, 1974:1855). Sanjay Sharma affirms
that in the earlier accounts of colonial state in India terms like ‘drought', ‘scarcity’, ‘distress’,
‘dearth’ and ‘famine’ were used interchangeably but over a period of time ‘their meanings
became more specific and the state evolved a set of criteria’ to ‘comprehend and classify
a situation as a ‘scarcity’ or a ‘famine’ (Sharma, 2001: 6). The causation of famine may
be attributed to natural phenomena like acute shortage of rainfall, attack by pests, etc. or
political and economic factors like wars, economic depression and government policies
resulting in heavy taxation, financial crisis etc.
The famines occurred at frequent intervals in the Indian subcontinent but the policies
implemented to deal with it differed under each political regime. Many texts belonging to
ancient period including Vedas and Jatakas allude to famines occurring during those times.
A severe famine was reported in Bihar in 298 BCE under the reign of Chandra Gupta
Maurya which lasted for 12 years and Kalhan’s Rajatarangini also mentions about a terrible
famine that occurred in Kashmir. One of the most important accounts of dealing with such a
calamity comes from Kautilya’s Arthashastra, a treatise on statecraft composed during the
Mauryan rule. It recommended that in times of famine, the king should provide the subjects
food from his own stores, encourage migration of people to sea shores, banks of rivers or
lakes and levy additional revenue apart from taking contributions from the rich. Kautilya, in
the fourth century BCE also recommended employment creation and redistribution to the
poor as parts of a sound administrative system to defeat famines (Dreze & Sen, 1991: 123).
During the medieval period, there is a reference to a severe famine that occurred during
Alauddin Khalji’s reign (1296-1316) whereby the Sultan and the nobles did whatever was
possible in their capacity to provide relief to the people. Barani, the court chronicler, mentions
that he introduced a new economic policy by establishing grain stores in mohallas of Delhi.
During the reign of Muhammad bin Tughluq, the failure of rains (1326-27) affected several
parts of the Doab and the suffering was worsened due to the enhanced revenue assessment.
Another famine from 1334-35 lasted for seven years and the state advanced loans, encouraged
migration, allowed sinking of wells, etc. Various Indian rulers (such as Muhammad bin Tughluq
in the fourteenth century) made extensive use of work projects and income creation for
rebuilding lost entitlements (Dreze & Sen, 1991: 123). The Mughal rule was also not left
untouched by the famine. Among many incidents of scarcities, the court historian Abul Fazl
mentions one which occurred in 1583-84 during the reign of Akbar. It is believed that the
ruler laid the foundations of an embankment, opened alms houses and free kitchens in cities
and recruited soldiers in the army in order to provide employment to the affected populace.
The other kind of administrative arrangements included dahseri tax of ten seers per bigha
in kind from tilled land as famine insurance (Srivasatva, 2014: 17).
The causation, severity and the strategy of dealing with famines may have varied under
different regimes but the misery associated with it and large scale mortality was quite
pervasive. However, the famines were mostly local in character and not as widespread as
those documented in the nineteenth century. The general cause of famine was often
attributed to failure of rains followed by floods or wars. The suffering from scarcity
intensified under the East India Company (henceforth EIC) owing to the systematic
over-assessment of land revenue and economic exploitation. Initially there were no unified
or well defined rules for famine relief and administration. Although the EIC politically
gained foothold in the Indian subcontinent, yet it largely functioned as a corporate body
focussed on trade and commerce unlike earlier rulers who felt obligated to provide for
their subjects who suffered owing to the natural calamities. The policies followed by the
erstwhile rulers were more sympathetic towards famine relief than the EIC whose primary
aim was to reap economic gains than save people’s lives (Srivastava, 2014: 28, Meena,
2016: 3). The context of famines occurring in nineteenth century was different in scope,
188 incidence and policy outcome from the famines of the earlier times. However, the widespread
changes brought about in the colonial period exacerbated the effects.
11.2.2 Impact of the Colonial Political Economy Famines and Epidemics

The issue of famine cannot be seen in isolation to the changes brought about by the colonial
political economy. In the eighteenth century internecine warfare ensued with the
disintegration of the Mughal Empire resulting in the rise of provincial states. The absence
of paramount power gave East India Company a foothold to interfere in the internal political
scenario. Though it was a trading company, yet its ambitions were not limited to commerce
as they made political alliances to promote their economic interests. The competition from
British machine made goods, destruction of indigenous crafts, exemption or concession
given to foreign merchants from the payment of customs and transit duties, company’s
complete monopoly of Indian trade, heavy duties imposed by the British government on
Indian goods imported to England was a setback to the indigenous textile, carpet making,
fine embroidery and metal work industries. The people employed in these industries had
no option but to fall back upon their land. The weavers, spinners were reduced to penury and
the pressure on agrarian land could not supplement their income (Srivsatava, 2014: 10).
In the domain of foreign trade, India became a supplier of raw materials instead of exporting
finished goods. The peasants were initially engaged as independent contractors and later
as indentured workers cultivating tea, coffee and indigo for European planters. This coercive
exercise reduced the food crop area to make way for cash crops. The land revenue policy
of East India Company and later the British Government of India (Permanent Settlement
of Cornwallis, Zamindari system in North West Provinces, Ryotwari Settlements) were
characterized by excessive assessments, disregarded the occupancy rights of the tenants
and led to insecurity of rents and tenures (Srivsatava, 2014: 11-12). The growing and
widespread penury had a direct co-relation to mounting indebtedness as the peasants
found themselves at the mercy of money lenders who aided by the new laws of registration
could easily dispossess them from their lands. Indian political leaders like Dadabhai Naoroji
and economists like RC Dutt, blamed the British administration and particularly its system
of taxation for the deteriorating condition and widespread poverty among people (Naoroji,
1901: 36). Dutt attributed famines to the constantly soaring land revenue which left no
surplus with the cultivator nor permitted him to invest in agricultural improvement (Dutt,
1909: 2; Srivastava, 2014: vi). Thus, British rule resulted in general impoverishment which
was aggravated by the occurrence of famines. The next Section will discuss the famines
that occurred during the colonial period from eighteenth to mid-twentieth century.

11.2.3 Reports, Commissions and Relief Measures

It is difficult to estimate the number of famines that have occurred in India. Paul Greenough
gives an approximate figure of famine that occurred between 298 BCE and 1943-44 CE.
He identified four famines before 1000 CE, twenty-four between 1000 CE and 1499 CE,
eighteen in the sixteenth century, twenty-seven in the seventeenth, eighteen in the eighteenth,
and thirty in the nineteenth century. India experienced a declining trend in the overall
number of excess death between the 1870s and the 1900s, followed by four famine-free
decades. According to Sourabh from 1850 to 1899 itself, India suffered ‘24 major famines’
which resulted in a death toll crossing millions (Sourabh, et al., 2015).
It is difficult to give an exact official number of famines and scarcities that occurred during
the colonial rule but it is important to distinguish the policies followed by the East India
Company to mitigate the effects of famine from those which were formulated under the
British crown. The famine in Bengal province in 1769-70 claimed one third population of
the province. At that time instead of providing relief to the victims, there was widespread
black-marketing of rice which added to the existing woes. Initially there was no ethical or
obligatory sense of providing relief to people as the Company servants continued to make
windfall profits even during a crisis. However, during the 1803 famine in North Western
Provinces and Oudh, the state granted revenue remissions, gave loans to landowners and
offered a bounty on grain imported to Allahabad, Benaras, Kanpur, etc. In the year 1837,
there was a severe famine in upper India which prompted the government to open public
works at several centres but the work of providing relief to the victims, needy and infirm
was left to philanthropic individuals. Hence, the EIC officials did not work actively towards 189
Colonial Economy preventing the recurrence of famines nor did they formulate any robust system of relief to
ameliorate the situation.
In the aftermath of the 1857 rebellion, the rule of East India Company ended and the political
administration passed on to the British Crown (1858-till middle of 20th century). Apart from the
transfer of power from Company to the Crown, it was also a period of economic development
like extension of railways and other means of communication and transport which connected
remote areas to bigger towns. However, many parts of the Indian subcontinent were reeling
under heavy financial burden when the famine of 1860 occurred in North West Provinces. In
the 19th and 20th century, the famines became more frequent and took a heavy toll on human
lives resulting in starvation, disease outbreak and malnutrition. It was difficult to ‘distinguish
between starvation deaths caused by hunger and those caused by diseases like dysentery and
fever’ which were believed to be indirect results of famine (Srivastava, 1914: 47). The policy
of relief organized by the government included providing work to the able-bodied and gratuitous
distribution of food to those who could not take care of themselves.
The government set up an enquiry committee and appointed Colonel Baird Smith
(Superintendent of Irrigation) on 2nd February 1861 to enquire into the causation of famine
and suggest remedial measures. In his recommendations, Colonel Smith stated that there
was a vital connection between the revenue demand of the government and famines and
therefore an oppressive revenue claim worsened the situation. He recommended that land
revenue should be reduced and permanent settlement be made at least in those parts which
were not irrigated by canals. He also suggested the extension of irrigation system that would
act as a protective measure to prevent recurrence of famines or lessen the severity of crop
failure in those areas (Srivastava, 2014: 52-53). His famine report was the first in the history
of famine policy of India and is remarkable for considering Indian famines as ‘rather famines
of work than of food; when work can be had and paid for, food is always forthcoming’ (sic)
(Srivastava, 2014: 54). He also suggested improvement of internal communications, extension
of railway lines and extension of roads to connect villages that could help prevent the rise in
prices. However, the government did not implement any of these recommendations as they
were only concerned with setting up an enquiry and not investing in relief measures.
The hardships caused by famines continued every year. In the case of Orissa famine, the
government appointed a committee under the chairmanship of George Campbell who
submitted the report after examining the affected areas. The Famine Commission 1866-67
recommended tenure of land for agriculture, liberal assessments, legislation to remove
vested interest and definite rights in land (Srivastava, 2014: 90). However the task of
gratuitous relief was left to social philanthropy and government’s role was limited to providing
public works to the able-bodied people. It also recommended better communication through
extension of railways to connect important places and promote use of canals for navigation.
The thrust on stepping up irrigation was considered crucial to prevent future famines but
the government did not implement the recommendations.
The worst famine in that decade took place in Rajasthan, North Western provinces, Punjab
and Central provinces in 1868-70. Rajasthan was badly affected where the death toll
swept away one third of the total population. There was increase in the number of petty
thefts and crime rate. In the next few years from 1870-80, Bengal was affected by a
famine twice followed by Punjab and a severe famine occurred in South India from
1876-79. The Famine Commission of 1880 was constituted under Sir John Strachey as
President. Its report outlined the geography, population and climate of British India indicating
the degree to which each part of the country was susceptible to famines. It gave a historical
overview of famines occurring since 1770 and provided measures to be adopted for providing
relief during such calamities. The Commission affirmed the responsibility of the state to
prevent famines and deaths resulting from want of food or due to limitation of expenditure
(Srivastava, 2014: 168). It recommended that large works of permanent utility carried out
under Public Works Department should be the basis of famine relief and proposed remission
of revenue. The children who had become orphans were to be given away to well to do
persons of their own religion to prevent their conversion by Christian missionaries. In
order to improve the administration of famine relief, it ordained the formation of famine
190
code and suggested the creation of a separate agricultural department to keep records of
all past famines and agricultural/economic statistics of the country. It also suggested Famines and Epidemics
legislation to be passed to protect the cultivator’s rights, gave ideas for cultivation of special
crops, improvement in agricultural implements, cattle breeding, promotion of agricultural
education, extension of railways, conservation of village forests, etc. The framing of
region-specific ‘Famine Codes’ embodying ‘authoritative guidelines’ to the local
administration on the measures needed to anticipate and deal with the threat of famine
was an important recommendation among many others (Dreze & Sen, 1991: 123).
This report was a landmark in the history of Indian famines as it influenced most of the
policies later. CA Elliot, Secretary to the Commission, drew a model draft of Famine Code.
The provisional famine code consisted of eleven chapters dealing with organization of
village relief, duties of civil officers, professional agencies works, poor houses, measures
for the protection of cattle, duties of police and medical officers, wages and rations, etc.
(Srivastava, 2014: 174). The famine relief policy including Famine Codes instituted by the
Government of India from 1858-1880 was an experiment based on trial and error. In every
famine they were issued or improved according to the needs and circumstances. While
the famine codes recorded the lessons learnt from earlier famines, yet they did not resolve
the systemic problems related to poverty, irrigation, land revenue, etc. Later Agricultural
Loans Act (XII of 1884) and the Land Improvement Loans Act (XIX of 1883) were
formulated where loans were given free of interest for seed, cattle and subsistence
(Srivasatva, 2014: 263). Thus the Famine Codes were lengthy documents and established
a complex administrative system that local administrators had trouble following in detail.
After the last colonial all India Famine Commission of 1901, the provincial governments
continued to introduce changes to the famine codes in their regions (Simonow, 2023: 27).
During 1880-90, many local and regional famines occurred. The severity and distress caused
by famines were determined by a variety of social and economic factors such as the quantity
of existing food stocks in the affected areas, the facility of transport, the extent of rise in prices,
the availability of employment, etc. In 1900 a Famine Commission under the Chairmanship of
Sir AP MacDonnell was appointed which submitted its report in 1901. The report brought out
the frequent nature of calamity and unpreparedness of the government to deal with the scenario.
It was advised to grant liberal advances in the early stages of the distress and take timely
action with regard to the suspension of revenue. The creation of an efficient audit and account
system was advised. The commission recommended abolition of the minimum wages for the
able bodied and compulsory daily payments for work done under the purview of public works.
For the preservation of cattle, it was encouraged to cultivate fodder crops and loans to be
granted to purchase the same. They emphasized on the ‘moral strategy’ as a weapon to
alleviate the misery caused to the masses (Srivastava, 2014: 290).
The famines continued in the twentieth century though the severity reduced but the 1943
famine in Bengal stands out in the public memory even today. It was devastating in terms
of its scale, causing three million deaths and occurred during the midst of World War II
(Mallik, 2023: 3219). The reasons behind the causes of the Bengal famine have been
widely scrutinized. The Family Inquiry Commission (FIC) was appointed by the Government
of India in 1944 to investigate the causes of famine. They concluded that there was a
serious shortage in the total supply of rice available for consumption in Bengal. The
Commission blamed natural calamities along with the tendency of Indians to breed
excessively. Scholars working on the region have debunked this theory and among many
other reasons have demonstrated how colonial bio-politics unfolded during that period
‘where the laws, and policies were implemented only to serve the British government’s
priorities’ (Mallik, 2023: 3219). Amartya Sen analyzed the impact on mortality and the
moral economy of sharing of food within families. Goswami has argued that the famine of
1943 in Bengal was a problem of distribution and price not of production and supply.
Mukherjee asserted that the history of the Bengal famine is also the history of power and
disempowerment. Though the policies of the colonial rulers were to a large extent responsible
for the making of the Bengal famine, the nationalist leadership was also guilty. Mukherjee
rightly noted that as the end days of the Empire was within sight, ‘the national leadership
circled around the pie of independence, failing even to notice that … the population in
Bengal were beginning to starve’ (2015: 252). Hence there are many theories to explain 191
Colonial Economy the cause and effect of famines in a region. The following Table (indicative not an exhaustive
list) gives an overview of some of the major famines that occurred in India.
Table 1: A List of Some Major Famines in Colonial India
Famine Region Causation and outcome Relief measures
Year
1770 Bengal Bad season and scanty spring Embargo on food grain export, steps
harvest. Prices rose four to ten to prevent hoarding put in place.
times, slavery grew and even
children were sold.
1773 North West Provinces, Oudh, Rain, excessive revenue Officers asked to monitor grain prices,
Kashmir, Punjab, Madras, assessments, war, locusts, etc. people were encouraged to migrate.
Bengal, parts of Rajputana
and Bombay
1783-84 Known as the Chalisa The 1783-4 famine followed a Relief measures that were introduced
(fortieth year according to crop failure over a wide area. were insufficient and delayed to
Hindu calendar), it reached prevent its effects.
near the then Company
territories but did not
penetrate them.
1802-4 Bombay, Hyderabad, North Failure of rains, Anglo Maratha Grain export prohibited, public work
West Provinces, North war employment opened up, hospitals
Madras were set up, taqavi loans granted.
1812- 15 Bombay, Gujarat, Lack of rain, several years of crop Some people employed for work and
Rajputana loss due to attacks by locusts wages paid in kind.
and rats.
1837-38 Allahabad, Kanpur, Lucknow, Failure of rains, excessive Oppressive fiscal system remained,
Meerut, Bareilly Delhi, revenue demand, villages
deserted, children sold, violent work provided on low wages,
Jaipur, Doab (Land between agrarian disturbances, riots, gratuitous relief left to private charity.
river Ganga and Yamuna) robberies, widespread crime and
looting
1860-61 North West Provinces Orphans had to be looked after Rule had shifted from EIC to Crown
by relief committees, Work provided to able bodied,
The landless agricultural gratuitous relief and grants for seed,
labourers and weavers were grain and cattle given.
reduced to penury. Migration Colonel Baird Smith’s Report on the
of people to areas where food famine of 1860-61
was available.
1865-67 Orissa, parts of Bengal Bihar, Failure of rains, poor crops and Government initially followed a policy
Eastern Ghats, some districts high revenue assessment. It is of non-interference and it led to delayed
of Madras estimated one third of the response in providing relief. Private
population in Orissa succumbed effort or aid is unrecorded. The Orissa
to the famine and disease. Famine Commission 1866-67 headed
by George Campbell submitted its
report.
1876-70 Marwar, Bikaner, Ajmer, Failure of monsoon, loss of Houses for poor organized.
states of Rajputana, central crops, spread of cholera, Non-interference in trade continued,
India, NW provinces malarious fever, locusts, the famine fund collected
number of crimes increased.
1870-80 Decade of famine in different Intense drought resulting in The Famine Commission of 1880 (Sir
parts of the country including crop failure in Deccan plateau, John Strachey as its Chair)
Punjab and South India El Nino and Indian Ocean In 1880, the Secretary to the
Dipole effect. Commission drew up a Draft Indian
Famine Code. These along with
provincial famine codes were the basic
doctrines of famine relief until the
1970s.
1896-97 Bundelkhad, United Drought, poor monsoon rains Sir James Lyall Commission 1896
Provinces, Central Provinces, recommended development of
Bombay, Madras, Punjab irrigation facility
1899-1900 Western and Central India Failure of monsoons The Indian Famine Commission of
1901 (led by Lord MacDonnell)
1943 Bengal Province of British Food diversion, disruption and Fourth Famine Inquiry Commission
India mismanagement during World set up in 1944.
War II; 3 million deaths
192 Table complied by the author (Source: Srivasatva 2014: 20-26 and Tirthankar Roy 2016)
Famine was a regular feature in the history of India. However, from 1760 to 1943 India Famines and Epidemics
faced terrible famines on a regular basis in which approximately 85 million Indians died
mercilessly. Renowned scholar Mike Davis has termed this phenomenon as ‘‘Late Victorian
Holocaust.’’ The introduction of railway infrastructure in India proved to be catalyst in the
occurrence of famines, due to which magnitude of casualty reached its numerically deadliest
peak in the late eighteenth and nineteenth centuries. Indian export of food grains (primarily
rice and wheat), opium, jute, indigo and cotton were prominent component of the British
economy, which aimed to generate vital foreign currency. Export of agricultural products
led to food crises. Members of the British administrative machinery also exposed that the
larger market created by railway transport encouraged poor peasants to sell off their last
reserve stocks of grain (Meena, 2016: 13-14). The following section gives an analysis of
the theories relating to the cause and effects of famine.

11.2.4 Outcome and Analysis: Crime, Altruism and the Moral

Economy of a Famine
The theories regarding causation and culpability of famine are manifold and equally varied
are its consequences. David Arnold suggests that famine as a ‘concept’ and a ‘historical
phenomenon’ represents both an ‘event’ and a ‘structure’ (Arnold, 1988: 6). There may
be many opinions as to when the famine began or ended but there is usually a consensus
regarding a ‘finite span of historical time and human experience’ of the event. The proximate
cause may be a natural disaster (flood) or a man made calamity (civil war, invasion) but
they only act as precipitating factors exposing the inherent contradictions or existing
vulnerability of a particular society. In fact the experience of famine by peasants in India
and the British being responsible for the misery of the agrarian class provided agenda to
the national movement leaders to demand for freedom from the colonial misrule (Arnold,
1988: 117).
Tirthankar Roy contemplates whether famines were natural (geographical, ecological) or
manmade (political or cultural) in their origin. Even though occurrence of famines was
quite common in the past, yet its systematic documentation is found in the colonial period
(1700-1947) under the rule of East India Company and later the reign of the British Crown.
According to him, the geographical account of famines ‘diminishes’ the role of the state in
its ‘occurrence and retreat’ whereas a political account ‘overstates’ it. Hence he locates
the third factor in the domain of knowledge suggesting that ‘limited information and knowledge
constrained state capacity to act during the nineteenth century famines’. It became rarer
once the statistical information and scientific knowledge to predict famines improved (Roy,
2016: 1).
An alternate explanation of ‘natural’ was given by Thomas Malthus who interpreted ‘nature’
to imply ‘natural carelessness’ where some regions experienced unchecked reproductive
and hence demographic growth. Therefore according to Malthus, the occurrence of famines
in an overpopulated country like India resulted in undue pressure on limited resources
leading to malnutrition and deaths. The ecological explanation for famines absolved the
imperial state of its role to prevent the event. The Doji Bara famine (also Skull famine) of
1791-1792 was attributed to a major El Niño event lasting from 1789-1795 and producing
prolonged droughts. On the other hand, one of the first enquiries conducted by the Indian
Famine Commission of 1880, concluded that, ‘the devastating famines’ in some provinces
were a result of ‘unusual drought’. This ecological explanation of famines implied that it
was beyond the control of state to anticipate or resolve the issue definitively.
Among the political factors the probability of famine occurrence went up under an
authoritarian regime or when the state machinery visibly declined. Mike Davis, in his
research on the nineteenth century tropical famines uses the word ‘manmade’ to indicate
‘made-by-the-colonial-state’. Davis attributed the mass death and human misery that
followed the late nineteenth century famines to politics, specifically, adherence to capitalist
ideology by the imperial states (Davis, 2000).
In a similar vein, the decision to wage wars was another major reason which led to the
diversion of food as evident in the case of Bengal Famine (1943) where it was believed 193
Colonial Economy that the market declined or state failed to restore supplies and redistribute food. Whether
British Prime Minister Churchill or the civil supplies minister in Bengal Huseyn Suhrawardy
was responsible for this debacle remains debatable. According to Amartya Sen, the Bengal
famine of 1943 was caused by the apathy of the imperial government along with the
market failure. He argued that there is an implicit social contract between the citizens and
the rulers and timely famine relief is a political obligation on the part of the state to provide
during a humanitarian crisis. He stated that the ‘Ownership relations are one kind of
entitlement relations’ within which the problem of starvation has to be analysed. In the
case of poverty and famines ‘an entitlement relation’ applied to ‘ownership’ works through
‘certain rules of legitimacy’ which broke down under that regime (Sen, 1981: 1).
Sen also established the nationalist theory of famine which explains causation and the
degree of exposure of population groups through the concept of ‘entitlement’. It is linked
to the decision as to who suffers the most during famines, and the answer varies depending
on whether the famine is caused by supply shock or price shock without supply shortfall.
According to him, the price shocks can occur independently of supply shocks, leading to
sharp fall in real wage in terms of food prices, and thus, famine. In August 1942, the
Japanese occupation of Burma led to demand spike in Bengal and the supply shortfall
owed to disruption of Indo-Burma trade. Sen and Mukherjee suggest that the famine was
engineered by the state owing to indifference or a mistaken faith in markets (Mukherjee,
2009; Sen, 1989).
Other scholars who have researched the 1943 Bengal famine have offered somewhat
different interpretations of the episode. Islam suggests that the number of near-destitute
was already large in Bengal, owing to a slow-developing mismatch between food and
population, when the famine struck (Islam, 2007). Paul Greenough argues that government
regulation of the grain market caused uncertainty and led to rise in prices. Moreover, a
gradual process of diminishing returns to agriculture in the Bengal delta made the crisis
more probable (Greenough, 1982). Bose places the famine in the backdrop of a
post-depression crisis in the small peasant economy of Bengal, where ‘the subsistence
foundations of agriculture had for some time been cracking’ (Bose, 1990).
Dharma Kumar cautions against overemphasizing the role of the pre-colonial rule
vis-á-vis the colonial state in controlling and reducing the effects of famine. She wrote that
even though ‘Pre-British’ governments in India ‘did try to counteract the effects of famine
by takkavi loans, the distribution of grain from public granaries’, yet public and private resources
were limited to mitigate the situation (Kumar, 1993: 2268). Roy argued that the human misery
following the nineteenth century famines in India had more to do with the limited means –
poor information, meager infrastructure, and small fiscal capacity – that the British imperial
state had at its disposal when dealing with natural disasters of such magnitude, than with
liberal ideologies or capitalism (Roy, 2012).Vishal Singh Deo disagrees with Roy’s claim and
insists on the links between colonial property and famine distress. He states that the Report
of the Indian Famine Commission of 1880 articulated relief through a process that forced
‘distressed persons into worksites and viewed confiscated estates as part of necessary logic
of capital to move from loss-making to profit-yielding estates’ (Deo, 2021: 87).
David Hardiman suggests that free trade and hoarding, carried out under direct or indirect
sponsorship of the colonial state, made famine conditions worse in western India
(Hardiman,1996: 113). But this was not very rampant due to the threat of grain riots and
crimes against money lenders or state officials. It is interesting to know that the grain riots
have been co-related to the concept of the moral economy of famines. It is widely understood
that the dominant classes deny their culpability for dearth and famine but seek to legitimize
their position by claiming that they would make attempts in ensuring subsistence for the
poor as gesture of paternal generosity or charity. The poor on the other hand see it as a
matter of elementary justice and the duty of the rich to maintain them. In case of any
grievance, they felt justified to take direct action against the rich which James Scott has
described as the ‘‘the right to subsistence’’.
Scott adapted ‘‘The moral economy of the peasant’’ from E. P. Thompson’s concept of
194 ‘‘the moral economy of the poor’’ (Scott, 1976; Thompson, 1971). Paul Greenough has
argued that the, patron-client relationships involving reciprocal forms of exchange were Famines and Epidemics
sanctioned by an ideology of hierarchy and caste system. But in the context of Bengal
famine of 1943-4, the peasants suffered through famine as a fait accompli as there were
no grain riots or a demand for a ‘‘right to subsistence’’ (Greenough, 1982). This submissive
and fatalistic attitude attributed to peasants has been questioned by Tirthankar Roy, Ranajit
Guha and other others who have provided evidence for peasant insurgency in the
pre- colonial and colonial period.
Moreover even in the princely state of Travancore, mass disease and starvation claimed
more than 90,000 lives during the Second World War. However, this episode has never
received much prominence, especially when compared to the simultaneous crisis in Bengal.
Balasubramanian claims that ‘Integration into the world economy, the reordering of a rigid
social structure, and popular political pressures on an autocratic princely regime created a
unique set of conditions that left Travancore vulnerable to food scarcity and conflict’. Hence
‘Hunger was a constitutive experience of this period across various parts of India, but the
post-colonial political legacies of war could be regionally distinct’ (Balasubramian 2023).
The role of philanthropy, benevolence and patron-client obligation was part and parcel of
the moral economy of famine. Sunil Amrith suggests that ‘from the late nineteenth century,
food was at the heart of secular interventions to improve the welfare of the population of
India’, and shows how ‘the problem of hunger’ led to an elaboration of older religious
notions of charity at the same time (Amrith, 2008). Douglas Haynes showed that the
formation of elite identity among mercantile communities also refigured notions of public
charity whereas Brewis proposes that many private charity directed at famine relief
specifically evolved in the colonial times (Haynes, 1987, Brewis, 2010: 887).
B.M. Bhatia who wrote on Indian famines argued that in the precolonial India, ‘caste and
joint family systems imposed the obligation of looking after the old, the infirm, the poor, and
the destitute’ so well that ‘the state had hardly any need to intervene’. But the advent of
British colonial rule destroyed this ideal of mutual help and social cohesion, turning scarcities
into famines (Bhatia,1975). Dick Kooiman’s study on the princely state of Travancore
which was not a colonial territory indicates that nineteenth century famines broke up
social cohesion among vulnerable population. Hence the colonial rule was not solely
responsible for not being able to provide timely social service. Many scholars suggest that
altruism did not end but reshaped the merchant identity, notions of citizenship, and patronage
relations during that era. Historians seem to agree that charity and philanthropy took a
new meaning in the wake of Indo-European cultural encounter (Roy, 2016: 20). Philanthropy
failed, but not owing solely to colonial westernization but due to the limited capacity of the
sponsor (Sugden, 1982).
The occurrence of famine and the failure to respond and resolve it in a suitable and efficient
manner was compounded by the incidence of epidemics which happened simultaneously.
The next Section will elaborate on this synchronous occurrence of famine and epidemics.

11.3 THE SCOURGE OF EPIDEMICS

There was concurrence in the timing of famine and epidemics as they happened in a
succession. A dreadful famine was typically followed by one or the other infectious diseases
such as bubonic plague, cholera, influenza, malaria, smallpox, typhoid, pneumonia, etc.
which killed a large section of population already destabilized by starvation (Drayton, 2001).
Railway transportation multiplied the scale of such diseases as people migrated in search
of food and work from the affected regions. Kinsley Davis and Tim Dyson explain that
between 1870 and 1920 the life expectancy of Indians fell by 20%, population declined by
10% and net cropped area decreased by 12%.
The epidemic control and the need to supply the food on time were equally important.
Famines made food unaffordable and exposed the already vulnerable population to epidemic
outbreaks. Three diseases – cholera, plague and malaria – took heavy toll of life in the
late-nineteenth century. Later the control of diseases, in turn, contributed to a permanent
decline in mortality from the second decade of the twentieth century (Roy, 2016:18). 195
Colonial Economy In one respect famines and natural disasters received a common pattern of response. In
both cases, the level of state intervention increased, albeit the ways in which it did differed
considerably. In colonial India, famines and epidemics were problems that affected the
indigenous population. The state in the nineteenth century followed a broadly non-intrusive
approach to problems that were related to the social and cultural practices of the indigenous
population. The public goods and markets worked as a better defence against famines and
epidemics. This included railways, sanitation, hospitals, institutionalisation of science and
medical practice which contributed to the understanding of causation and prevention of
the disease. Unlike famines, which affected the indigenous population, particularly the
poor among them, natural disasters affected both settlers and locals (Roy, 2008: 268). The
next section discusses some of the diseases that occurred in the aftermath of a famine.

11.3.1 Malaria, Cholera, Plague and Social Malaise

The climatic and sanitary conditions played an important role in the breeding of disease
vector and any epidemic spread not only affected the poor and vulnerable population but
also the elite social groups. Further, the changing social and economic networks and altered
behavior patterns contributed to the transmission of diseases. For example, population
mobility due to railways led to the spread of malaria with migrants moving in and out of the
endemic malaria zones (Arnold, 1993: 401). The epidemics intensified due to overcrowding,
poverty, and malnutrition. Epidemic malaria did not necessarily occur along with a famine.
However, it most often occurred when the nutritional deficiencies of rural poor after famine
coincided with a proliferation of Anopheles – vector of malarial parasite – caused by
heavy rain (Wakimura, 2002).
The simultaneity of cholera and famine was most devastating during the second half of the
nineteenth century, a period of frequent and widespread famines (Arnold, 1993: 166-
68). Epidemics caused widespread mortality but the loss of life doubled or trebled
when cholera or plague coincided with famines. Thus cholera deaths were higher in
the famine years of 1877 and 1900 (Arnold, 1989). Famine mortality was worsened
by diseases but there were also epidemics independent of famines, like the plague
epidemics in 1905 and 1911, and the influenza epidemic in 1918.
India’s droughts and famines seemed to contradict the general perception of tropical
fertility and natural abundance. The word ‘tropical’ was used in botanical, medical
and even geological texts in India and a perception of specific diseases occurring in
this part of the subcontinent was created (Arnold, 2000: 51). Vibrio Cholerae or the
rather maligned ‘Asiatic Cholera’ also referred to as ‘Indian Cholera’ was not only a
serious public health concern but also a polemical issue of debate due to its seasonal
visit. As per the records from the nineteenth century, it was predominantly the rural
population in India who suffered the most due to cholera (Mehra, 2020). Nationally,
cholera never reached the fearsome annual peaks of plague, influenza or malaria, but
its cyclical frequency and intensity in India led to a recorded toll of 22 million between
1887 and 1954 (Klein, 1994).
The bubonic plague which engulfed the city of Bombay in 1896 re-ignited the
controversy between the ‘contagionist etiology which focused on the human body
as the carrier of disease to the localist framework which emphasized on the
environmental factors as a predisposing cause of the plague’ (Kidambi, 2007). The
Bombay plague epidemic was thought to have originated in the Chinese mainland
during the early 19th century, spread to Hong Kong in 1894 and eventually reached
India via naval trade routes entering Bombay by the summer of 1896. At the onset,
the British authorities kept the ports functional so that global trade networks were not
disrupted. They ascribed the outbreak to habits and local customs, blaming the living
spaces of Indians for being filthy and unsanitary, deliberately overlooking extraneous
factors such as the trade ships which arrived into the ports carrying the flea-infested
rodents. The focus of governmental response was the ‘locality’ (slum) where thorough
disinfection operation was carried out, plague-ridden buildings were demolished and
large population was evicted to the camps outside the city (Mehra, 2020).
196
11.3.2 The Epidemic Diseases Act, 1897 Famines and Epidemics

In order to contain the contagion, the government passed a law known as ‘The Epidemic
Diseases Act’ of 1897 which empowered authorities to adopt all measures deemed necessary
to prevent the plague’s spread, including prohibition of pilgrimages to Mecca and emigration
from India, preventing railway bookings, religious gatherings and stocking essential
commodities. The implementation of this Act did not go down well with the subject population.
Soldiers were enlisted to conduct an intrusive door-to-door search, the ‘infected dwellings’
were demolished, caste and religious segregation was practised, arrangements were made
to dispose of dead bodies by sprinkling carbolic powder over the corpse before washing
with a phenyl solution. These stringent yet inconsiderate measures of assaulting, humiliating
the people and destroying their property triggered discontent leading to the assassination
of the plague commissioner WC Rand in Pune (Mehra, 2020).
The Epidemic Diseases Act passed in 1897 was a small legislation consisting of four
sections to prevent the spread of ‘‘Dangerous" Diseases. The concerns included specifying
special measures to control the outbreak, enabling the state governments to take measures
to contain it, spelling out penalty for those who disobeyed and granting protection to those
who implemented it. While the Act was precise in its content, it left much room for
interpretation. The definition of a ‘‘dangerous epidemic disease’’ was not provided in the
Act. There was no clear description of whether an epidemic was ‘‘dangerous’’ on the
basis of the magnitude of the problem or the severity of the disease. It was purely regulatory
in nature and lacked a specific public health focus. Hence it was like a ‘‘policing’’ Act,
intended to control epidemics and not to deal with coordinated and scientific responses to
prevent and tackle the outbreak (Rakesh, 2016; Mehra, 2020).

11.4 FAMINES, EPIDEMICS AND COLONIAL

POLICIES
Famines and Epidemics experienced during the Colonial period in India were severe and
had a long term impact on the population and economic growth of the country. The famines
were typically followed by fatal diseases and the railway networks which helped people to
migrate in search of food and work also enabled the spread the diseases to other areas
(Meena, 2016: 13-14). Florence Nightingale who worked in the famine affected regions
pointed out that they were not caused by the ‘lack of food’ in a particular geographical
area but due to ‘inadequate transportation of food’ and the basis for it was ‘an absence of
a political and social structure.’ (Lynn & Gérard, 2006). The Indian Famine Codes introduced
in the wake of a series of major famines in the 1870s cautioned to watch out for early
warning signals which included rise in grain prices, increase in migration and widespread
crimes but the recommendation of the major commissions and famine codes were not
entirely implemented (Grada, 2009: 3-4). While some prominent British citizens, such as
William Digby campaigned for policy reform and hunger relief, most others like the British
Governor-General of India, Lord Lytton, opposed such changes, believing that it will stimulate
wage aversion by Indian workers. The effects of the famine varied in different regions
and city dwellers never suffered to the same degree as their rural counterparts. Even
though some famines were triggered by the lack of rainfall or due to manmade reasons, yet
the impact was felt more due to the result of chronic poverty. Morris D Morris rightly pointed
out that ‘drought, floods and threats of famine produce more intense public reactions than do
epidemics or the far more grievous burden of structural poverty’ (Morris, 1975: 283). Hence
the colonial political outlook was more concerned in preventing the dire effects of famines
and epidemics but ignored the structural issue arising out of their policies and economic
exploitation that resulted in widespread poverty and mortality.

11.5 SUMMARY
After reading this unit you will be able to understand the linkages between colonial political
economy, famines and epidemics. You will be able to differentiate the policies followed in
197
the pre-colonial period and those implemented under the East India Company and the
Colonial Economy British Crown to deal with famine and epidemics. You will learn about natural and manmade
factors that contributed to ecological changes and worsening of famine situation. The
effects of famine in the form of grain riots and philanthropy have also been laid out. Finally
the role of The Epidemic Diseases Act in dealing with contagious diseases has been discussed
briefly.

11.6 GLOSSARY
Chalisa Chalisa (literally, "of the fortieth’’ in Hindustani)
refers to the Vikram Samvat calendar year 1840
(1783)
Contagionist Etiology The causation for the spread of an infectious
disease
Doji Bara The Doji Bara famine (also Skull Famine) of
1791-1792 was attributed to a major El Nino event
lasting from 1789-1795 and producing prolonged
droughts.
Famine Codes They were guidelines for the local administration
to provide relief measures

11.7 EXERCISES
1. What were the recommendations given by the Famine Commissions?
2. How useful were the Famine Codes?
3. How is crime and philanthropy related to famine relief?
4. Do epidemics always occur in conjunction with famines?
5. How far did the Epidemic Diseases Act respond to the problems created by contagious
diseases?

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Zmolek, Mike (1990), ‘Aid, Agencies, NGOs and Institutionalization of Famine’, EPW,
Vol. 25, No.1, 37-48.

11.9 INSTRUCTIONAL VIDEO RECOMMENDATIONS

https://www.youtube.com/watch?v=amV_XKaiTKE
https://www.youtube.com/watch?v=gNVHezNjGGY
https://www.youtube.com/watch?v=9XhezyGfuDU&t=480s
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