A New Economic History of Colonial India

Latika Chaudhary, Bishnupriya Gupta, Tirthankar Roy, Anand V. Swamy, Latika Chaudhary, Bishnupriya Gupta, Tirthankar Roy, Anand V. Swamy

• Publisher: Taylor & Francis
• Year: 2015
• Print ISBN: 9781138779723
• eBook ISBN: 9781317674320
• Edition: 1
• Topic: Social Sciences
• Subtopic: Regional Studies
• Index: Social Sciences

A New Economic History of Colonial India provides a new perspective on Indian economic history. Using economic theory and quantitative methods, it shows how the discipline is being redefined and how new scholarship on India is beginning to embrace and make use of concepts from the larger field of global economic history and economics.

The book discusses the impact of property rights, the standard of living, the labour market and the aftermath of the Partition. It also addresses how education and work changed, and provides a rethinking of traditional topics including de-industrialization, industrialization, railways, balance of payments, and the East India Company. Written in an accessible way, the contributors – all leading experts in their fields – firmly place Indian history in the context of world history.

An up-to-date critical survey and novel resource on Indian Economic History, this book will be useful for undergraduate and postgraduate courses on Economic History, Indian and South Asian Studies, Economics and Comparative and Global History.

1 Introduction

Latika Chaudhary, Bishnupriya Gupta, Tirthankar Roy and Anand V. Swamy

DOI: 10.4324/9781315771083-1

The aim

In this book we aim to provide the students of Economics, History, Development Studies and Global History with a handy textbook on the Economic History of colonial India. Over the last two decades, many papers have been published in Economics and Economic History journals using tools from Economics to analyse the development experience of colonial India. This literature is not necessarily a critique of the existing debates on the role of colonialism, but takes a more thematic approach to situate the history of India in the context of developments in the writing of the Economic History of Europe, Asia, Africa and the Americas. These themes range from the impact of property rights, the provision of public goods, standard of living, institutional specificities and labour markets to the investments in human capital and infrastructure, and economic impacts of shocks such as the partition. This book contains a collection of essays by subject experts, all of whom have been associated with teaching Economic History and have published original articles in the field in recent times.

Presently, teachers have a few resources when teaching the Economic History of India. One of these is The Cambridge Economic History of India, vol. 2 (Kumar and Desai 1983, hereafter CEHI 2), a collection of papers on different aspects of the economy. There are textbooks on the subject (Roy 2011a; Tomlinson 1982; Rothermund 2000) and more focussed monographs such as Bagchi (1972) or Blyn (1962). There are edited collections that republish essays written over several decades. Yet the new research on the Economic History of colonial India is yet to find its way into texts and readers. This book is an attempt to make this research accessible to students of Indian Economic History. The chapters have grown out of the research interests of the contributors as well as discussions and feedback from students and colleagues. This volume of readings aims to show how the discipline is being redefined in the present time, and how, in that process, the new scholarship on India is beginning to embrace and make use of concepts from the larger field of global Economic History and Economics.

What is this book not trying to be? It is not intended to replace or update existing texts and reference works. With all its limitations of coverage, the CEHI 2 remains indispensable as a research tool, or even as a teaching aid in a research-oriented course. This book does not want to be, and cannot be, a systematic summary of everything one needs to know on the subject. It collects a set of reflective reviews by a number of active practitioners of the field. In that sense, it shows how the field has changed.

A survey of the field

The time span of interest to the book is colonial India, roughly 1757 to 1947, though individual chapters define their time spans flexibly. Over almost 200 years, India experienced the full effects of three world-changing forces: the British Empire, the Industrial Revolution, and the first period of globalization that saw a massive increase in trade, investment and labour migration. The Empire represented a diverse collection of world regions with a shared official language and mutually compatible legal regimes. Colonization and globalization brought new institutions and new responses from economic agents in agriculture and industry. The interactions with European trading companies and the Asian trading networks in the seventeenth and eighteenth centuries opened up new opportunities for weavers, artisans and merchants. The thriving world of commerce in pre-British India has been the subject of extensive research (Bayly 1983; Chaudhuri 1978). The rising trade in textiles brought prosperity to weavers and merchants and made India the main supplier in the world market. In the three principal port cities, the merchants made money in maritime trade and the financing of trade. The ‘deindustrialization’ of India that coincided with colonization also coincided with one of the most important economic events in the world, the ‘Industrial Revolution’, which transformed the technology of textile production. From an exporter of cotton goods, India became locked in a colonial relationship with Britain in an international division of labour. The process of nineteenth-century deindustrialization was the mirror image of rising commercialization of agriculture. With the rise of modern industries from the middle of the century, the textile factories that started in Bombay and Ahmedabad once again became a dynamic sector of the economy. But in the vast backdrop of an agrarian society, these ports-cum-mill-towns were mere islands. How did the two forces shape prospects of economic growth?

The oldest and the most enduring conception in Indian Economic History has focussed on the balance of payments, or colonial India’s transactions with the nineteenth-century world economy. Two stylized facts influenced the arguments surrounding economic growth, or rather the lack thereof in the region: first, a persistent surplus of exports over imports, and second, a persistent net payment deficit on the invisibles account. The Indian nationalist critics of imperial rule called the net payment deficit on the invisibles account ‘drain’. The notion behind the drain was that these payments, which potentially reduced domestic savings, and consisted of payments on account of services purchased from Britain on private and government account, reflected India’s subservient political status to Britain. The nationalists saw market integration with the international economy as a colonial construct which transformed the pattern of merchandise trade from exports of manufactured goods into exports of primary agricultural commodities. Colonial policy stunted the pattern of development by denying autonomy in trade policy. Railways too became a vehicle for reinforcing the pattern of colonial trade. Land was another area of debate.

Land

Even at the peak of India’s industrial success, she was primarily an agricultural economy. The impact of colonial rule on agriculture is thus key to accounting for the overall economy’s progress or failure. The first steps of the colonial rulers were to introduce relatively clearly defined property rights in land in the late eighteenth century. Three variants of a system that was to incentivize the landowner to improve productivity ranged from the zamindari system that gave property rights and tax responsibility to the landlord to the ryotwari that gave the same to the owner-cultivator and finally the mahalwari that allowed communal ownership and tax responsibility. The Crown inherited this system of land rights just when a long period of boom in the terms of trade was beginning. During 1860–1920, agricultural prices steadily increased in relation to non-agricultural prices. Export of agricultural products became more profitable. The peasant with secure rights and some surplus crops to sell gained; so did the economy of Britain, which wanted Indian cotton and wheat in exchange for textiles, and the Indian state for which land tax was the main income. The British state embarked on a programme of investment in infrastructure, particularly railways and to a limited extent irrigation to aid the process of integrating India into the global economy. The newly constructed railway network reduced transport costs and helped increase trade. It also brought in capital flows from London. In this period of colonial rule, GDP per capita witnessed a slightly positive growth.

But these processes also exposed, and possibly intensified, regional and other types of inequality. As canal-rich Punjab saw agricultural growth, the dry-land and rain-fed peninsula saw repeated occurrences of devastating famines and mass death. In zamindari areas, landlords with secure land titles lived off rent. They often lived in the cities and neglected investments, whereas hard-working tenant farmers had little incentive to spend money on land improvement. Throughout India, trade encouraged the business of rural lending. In the ryotwari areas, land titles began to be mortgaged to finance investment or consumption. In a bad year, the debts could be ruinous for the peasant. New research in the 1970s and the 1980s focussed on the interaction between commodity markets, credit markets and rural property rights to reveal emerging patterns of inequality and their consequences for conditions of living (see essays in Raj, Bhattacharya, Guha and Padhi 1985; Bose 1994; Ludden 1994). The scholarship was characterized by disagreement over whether the net effect of all this was good or bad for agriculture. Predictably, the answer varied according to the region studied. Some studies emphasized the negative effects of the zamindari and related colonial institutions on agriculture in Bengal while others highlighted the achievements of the Canal Colonies in Punjab. But even within regions, the assessments often differed quite sharply, for example, on the role of irrigation in the United Provinces (Stone 1984; Whitcombe 1972).

Industry

Similar debates surround the study of industry. The standard trade model predicts that a region scarce in capital but abundant in land should see manufacturing retreat and agriculture expand as costs of conducting trade falls. In colonial India there was a retreat of manufacturing and a growth of agriculture. Still, India is more of an anomaly than a confirmation of the model’s predictions, especially when compared with tropical commodity exporters in Asia, Africa and Latin America. India specialized in export agriculture far less than these regions, and far from losing its manufactures, experienced robust industrialization after 1850. Between 1860 and 1940, modern industry emerged and grew significantly. Employment in factories increased from less than 100,000 to 2 million (Roy 2011a, p. 201). Real GDP at factor cost originating in factories rose at the rate of 4 per cent per year between 1900 and 1947 (calculation based on Sivasubramonian 2000). However, the share of modern industry in employment was small.

Studies on industrialization stressed two indigenous advantages: cheap labour and a strong mercantile tradition (Morris 1983; Bagchi 1972; Ray 1982). By many accounts, colonial policies hindered the entry of Indian entrepreneurs into a number of fast-growing industries. The presence of Indian mercantile networks in western India was described as a result of a less imposing position of British capital. Such narratives are fraught with problems of identifying the direction of causality. In reality, the entry of Indian merchant groups into modern industry in western India provided a strong contrast to the British domination of eastern India. New studies on Indian industrialization remained essentially within the field of business history (Tripathi 2004). A range of institutional details, such as law and aspects of business organization, were under-researched if not overlooked. Notable exceptions are the histories of labour in Bombay’s cotton mills and Calcutta’s jute mills that bear the common theme of a slow and late emergence of a ‘working class’ identity for migrant workers from a world of self-employment in rural India to crowded urban centres (Chakrabarty 1989; Chandavarkar 1994).

Against this backdrop significant revisions and rethinking have happened along a small range of themes, for example, the role of artisans. The real surprise of Indian industrialization is artisanal production of cotton textiles following deindustrialization. This business, along with a few other craft enterprises, experienced a significant revival from 1900. Beginning in the late 1980s, a group of historians have tried to explain this counter-intuitive stylized fact. Like mercantile heritage in the case of factories, another part of indigenous tradition, the accumulated skill and craftsmanship has also received particular attention in the revisionist account (Roy 1999; Haynes 2012).

Measurement

With such diverging accounts of agriculture and industry, aggregate measures such as GDP are necessary to understand how India performed under colonial rule. The first systematic measures of gross domestic product (1900–1947) were prepared in 1965, even though the work was not published in full detail until 2000 (Sivasubramonian 2000). Because of the long publication lag, a number of other crude figures circulated around, principally those by Maddison (1971) and Mukherjee (1965). Mukherjee’s method had the virtue of being amenable to extrapolation back in time, at least to the 1860s. But almost all these estimates suffered from assumptions recycled from the literature rather than a careful study of the data. By contrast, Sivasubramonian (2000) is a careful measurement project, and therefore became a benchmark to test some of the predictions in the nationalist-imperialist debate.

Combining the disparate estimates shows that colonial India did not experience a single pattern of GDP growth. There was positive growth, significant in comparison with the world average, during 1860–1920, and a deceleration thereafter. Whereas the factory sector, small industry, trade, transport and public administration performed well, agriculture, which determined average trends, did well until 1920 and badly thereafter. After 1920, acceleration in population growth further suppressed average incomes.

A new paradigm

Global history and economics have experienced a resurgence in the study of colonialism and institutions. In accounting for the wide scope of development experiences in the early modern period, researchers have drawn on themes in analytical Economic History, economic theory and the new institutional economics. Questions about how institutions formed, how the state worked and how individuals learned to do different things have demanded a fresh look at the colonial experience of India and other parts of the world.

Inherent in neoclassical models and Marxist accounts of modern economic growth is a strong Eurocentrism. In these accounts, western Europe invented industriali...

Table of contents

• Cover Page
• Half-Title Page
• Title Page
• Copyright Page
• Table of Contents
• List of figures
• List of tables
• List of boxes
• Notes on contributors
• Acknowledgments
• 1 Introduction
• 2 Indian economic performance and living standards: 1600–2000
• 3 The colonial transition and the decline of the East India Company, c. 1746–1784
• 4 The myth and reality of deindustrialisation in early modern India
• 5 The rise of modern industry in colonial India
• 6 Colonial India and the world economy, c. 1850–1940
• 7 Agriculture in colonial India
• 8 The long-run consequences of colonial institutions
• 9 Railways in colonial India: an economic achievement?
• 10 Caste, colonialism and schooling: education in British India
• 11 The growth of a labour market in the twentieth century
• 12 Industrial labour in late colonial India
• 13 Law and contract enforcement in colonial India
• 14 The partition and its aftermath: empirical investigations
• Index