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Economy of India under the British Raj

The economy of India under the British Raj describes the economy of India during the years of the British Raj, from 1858 to 1947. During this period, the Indian economy essentially remained stagnant, growing at the same rate (1%) as the population.[1]


The absence of industrialisation during the colonial periodEdit

Historians have questioned why India did not undergo industrialisation in the nineteenth century in the way that Britain did. In the seventeenth century, India was a relatively urbanised and commercialised nation with a buoyant export trade, devoted largely to cotton textiles, but also including silk, spices, and rice. India was the world's main producer of cotton textiles and had a substantial export trade to Britain, as well as many other European countries, via the East India Company. Yet as British cotton industry underwent a technological revolution in the late eighteenth century, the Indian industry stagnated, and industrialisation in India was delayed until the twentieth century.

Historians have suggested that this was because India was still a largely agricultural nation with low wages levels. In Britain, wages were high, so cotton producers had the incentive to invent and purchase expensive new labour-saving technologies. In India, by contrast, wages levels were low, so producers preferred to increase output by hiring more workers rather than investing in technology.[2] British control of trade and exports of cheap Manchester cotton are cited as other significant factors.

Even as late as 1772, Henry Patullo, in the course of his comments on the economic resources of Bengal, could claim confidently that the demand for Indian textiles could never reduce, since no other nation could equal or rival it in quality.[3] However, by the beginning of the nineteenth century, a beginning of a long history of decline of textile exports is observed.[4]

A commonly cited legend is that in the early 19th century, the East India Company (EIC), had cut off the hands of hundreds of weavers in Bengal in order to destroy the indigenous weaving industry in favour of British textile imports (some anecdotal accounts say the thumbs of the weavers of Dacca were removed). However this is generally considered to be a myth, originating from William Bolts' 1772 account where he alleges that several weavers had cut off their own thumbs in protest at poor working conditions.[5][6]


The worldwide Great Depression of 1929 had a small direct impact on India, with relatively little impact on the modern secondary sector. The government did little to alleviate distress, and was focused mostly on shipping gold to Britain.[7] The worst consequences involved deflation, which increased the burden of the debt on villagers while lowering the cost of living.[8] In terms of volume of total economic output, there was no decline between 1929 and 1934. Falling prices for jute (and also wheat) hurt larger growers. The worst hit sector was jute, based in Bengal, which was an important element in overseas trade; it had prospered in the 1920s but was hard hit in the 1930s.[9] In terms of employment, there was some decline, while agriculture and small-scale industry also exhibited gains.[10] The most successful new industry was sugar, which had meteoric growth in the 1930s.[11][12]


British investors built a modern railway system in the late 19th century—it was the fourth largest in the world and was renowned for quality of construction and service.[13] The government was supportive, realising its value for military use in case of another rebellion, as well as its value for economic growth. All the funding and management came from private British companies. The railways at first were privately owned and operated, and run by British administrators, engineers and skilled craftsmen. At first, only the unskilled workers were Indians.[14]

Extent of Great Indian Peninsular Railway network in 1870. The GIPR was one of the largest rail companies at that time.

A plan for a rail system in India was first put forward in 1832. A few short lines were built in the 1830s, but they did not interconnect. 1844, Governor-General Lord Hardinge allowed private entrepreneurs to set up a rail system in India. The John Company (and later the colonial government) encouraged new railway companies backed by private investors under a scheme that would provide land and guarantee an annual return of up to five percent during the initial years of operation. The companies were to build and operate the lines under a 99-year lease, with the government having the option to buy them earlier.[15]

Two new railway companies, Great Indian Peninsular Railway (GIPR) and East Indian Railway (EIR) began in 1853–54 to construct and operate lines near Bombay and Calcutta.[15] In 1853, the first passenger train service was inaugurated between Bori Bunder in Bombay and Thane. Covering a distance of 34 kilometres (21 mi).[16] The first passenger railway line in North India between Allahabad and Kanpur opened in 1859.

The railway network in 1909, when it was the fourth largest railway network in the world.

In 1854 Governor-General Lord Dalhousie formulated a plan to construct a network of trunk lines connecting the principal regions of India. Encouraged by the government guarantees, investment flowed in and a series of new rail companies were established, leading to rapid expansion of the rail system in India.[17] Soon several large princely states built their own rail systems and the network spread to the regions that became the modern-day states of Assam, Rajasthan and Andhra Pradesh. The route mileage of this network increased from 1,349 kilometres (838 mi) in 1860 to 25,495 kilometres (15,842 mi) in 1880 – mostly radiating inland from the three major port cities of Bombay, Madras, and Calcutta.[18] Most of the railway construction was done by Indian companies supervised by British engineers. The system was heavily built, in terms of sturdy tracks and strong bridges. By 1900 India had a full range of rail services with diverse ownership and management, operating on broad, metre and narrow gauge networks.[19] In 1900 the government took over the GIPR network, while the company continued to manage it.

In the First World War, the railways were used to transport troops and grains to the ports of Bombay and Karachi en route to Britain, Mesopotamia, and East Africa. With shipments of equipment and parts from Britain curtailed, maintenance became much more difficult; critical workers entered the army; workshops were converted to making artillery; some locomotives and cars were shipped to the Middle East. The railways could barely keep up with the increased demand.[20] By the end of the war, the railways had deteriorated badly.[21] In 1923, both GIPR and EIR were nationalised.[19]

"The most magnificent railway station in the world." Victoria Terminus, Bombay, was completed in 1888.

Headrick argues that until the 1930s, both the Raj lines and the private companies hired only European supervisors, civil engineers, and even operating personnel, such as locomotive engineers. The government's Stores Policy required that bids on railway contracts be made to the India Office in London, shutting out most Indian firms. The railway companies purchased most of their hardware and parts in Britain. There were railway maintenance workshops in India, but they were rarely allowed to manufacture or repair locomotives. TISCO steel could not obtain orders for rails until the 1920s.[22]

The Second World War severely crippled the railways as rolling stock was diverted to the Middle East, and the railway workshops were converted into munitions workshops.[23]

India provides an example of the British Empire pouring its money and expertise into a very well built system designed for military purposes after the Mutiny of 1857, and with the hope that it would stimulate industry. The system was overbuilt and too expensive for the small amount of freight traffic it carried. However, it did capture the imagination of the Indians, who saw their railways as the symbol of an industrial modernity—but one that was not realised until after Independence. Christensen (1996) looks at of colonial purpose, local needs, capital, service, and private-versus-public interests. He concludes that making the railways a creature of the state hindered success because railway expenses had to go through the same time-consuming and political budgeting process as did all other state expenses. Railway costs could therefore not be tailored to the timely needs of the railways or their passengers.[24]

After independence in 1947, forty-two separate railway systems, including thirty-two lines owned by the former Indian princely states, were amalgamated to form a single unit named the Indian Railways. The existing rail networks were abandoned in favour of zones in 1951 and a total of six zones came into being in 1952.[19]

Agriculture and industryEdit

The Indian economy grew at about 1% per year from 1880 to 1920, and the population also grew at 1%.[1] The result was, on average, no long-term change in income levels. Agriculture was still dominant, with most peasants at the subsistence level. Extensive irrigation systems were built, providing an impetus for growing cash crops for export and for raw materials for Indian industry, especially jute, cotton, sugarcane, coffee and tea.[25] 5. Agricultural income imparted the strongest effect on GDP. Agriculture grew by expanding the land frontier between 1860 and 1914 and became scarce after 1914.[26]

The entrepreneur Jamsetji Tata (1839–1904) began his industrial career in 1877 with the Central India Spinning, Weaving, and Manufacturing Company in Bombay. While other Indian mills produced cheap coarse yarn (and later cloth) using local short-staple cotton and cheap machinery imported from Britain, Tata did much better by importing expensive longer-stapled cotton from Egypt and buying more complex ring-spindle machinery from the United States to spin finer yarn that could compete with imports from Britain.[27] 6. The effect of industry was a combination of two distinct processes: a robust growth of modern factories and a slow growth in artisanal industry, which achieved higher growth by changing from traditional household-based production to wage-based production.[28]

In the 1890s, Tata launched plans to expand into heavy industry using Indian funding. The Raj did not provide capital, but aware of Britain's declining position against the U.S. and Germany in the steel industry, it wanted steel mills in India so it did promise to purchase any surplus steel Tata could not otherwise sell.[29] The Tata Iron and Steel Company (TISCO), now headed by his son Dorabji Tata (1859–1932), opened its plant at Jamshedpur in Bihar in 1908. It became the leading iron and steel producer in India, with 120,000 employees in 1945.[30] TISCO became India's proud symbol of technical skill, managerial competence, entrepreneurial flair, and high pay for industrial workers.[31]

Economic impact of British imperialismEdit

The subject of the economic impact of British imperialism on India remains contentious. The issue was raised by British Whig politician Edmund Burke who in 1778 began a seven-year impeachment trial against Warren Hastings and the East India Company on charges including mismanagement of the Indian economy. Contemporary historian Rajat Kanta Ray argues the economy established by the British in the 18th century was a form of plunder and a catastrophe for the traditional economy of Mughal India, depleting food and money stocks and imposing high taxes that helped cause the famine of 1770, which killed a third of the people of Bengal.[32] In contrast, historian Niall Ferguson notes that under British rule, the village economy's total after-tax income rose from 27% to 54% (the sector representing three quarters of the entire population) [33] and that the British had invested £270 million in Indian infrastructure, irrigation and industry by the 1880s (representing one-fifth of entire British investment overseas) and by 1914 that figure had reached £400 million. The British increased the area of irrigated land by a factor of eight (contrasting with just 5% under the Mughals).[33]

P. J. Marshall argues the British regime did not make any sharp break with the traditional economy and control was largely left in the hands of regional rulers. The economy was sustained by general conditions of prosperity through the latter part of the 18th century, except the frequent famines with high fatality rates. Marshall notes the British raised revenue through local tax administrators and kept the old Mughal rates of taxation. Marshall also contends the British managed this primarily indigenous-controlled economy through cooperation with Indian elites.[34]


The newly independent but weak Union government's treasury reported annual revenue of £334 million in 1950. In contrast, Nizam Asaf Jah VII of south India was widely reported to have a fortune of almost £668 million then.[35] About one-sixth of the national population were urban by 1950.[36] A US Dollar was exchanged at 4.97 Rupees.

See alsoEdit


  1. ^ a b B. R. Tomlinson, The Economy of Modern India, 1860–1970 (1996) p. 5
  2. ^ Griffin, Emma. "Why was Britain first? The industrial revolution in global context". Retrieved 9 March 2013. 
  3. ^ K. N., Chaudhuri (1978). The Trading World of Asia and the English East India Company: 1660-1760. Cambridge University Press. p. 237. ISBN 9780521031592. 
  4. ^ India and the Contemporary World - II (March 2007 ed.). National Council of Educational Research and Training. p. 116. ISBN 8174507078. 
  5. ^ Wendy Doniger. (2010). The Hindus: An Alternative History. Oxford: Oxford University Press, p. 582.
  6. ^ Bolts, William (1772). Considerations on India affairs: particularly respecting the present state of Bengal and its dependencies. J. Almon. p. 194. Retrieved 21 March 2017. 
  7. ^ K. A. Manikumar, A colonial economy in the Great Depression, Madras (1929–1937) (2003) p 138-9
  8. ^ Dietmar Rothermund, An Economic History of India to 1991 (1993) p 95
  9. ^ Omkar Goswami, "Agriculture in Slump: The Peasant Economy of East and North Bengal in the 1930s," Indian Economic & Social History Review, July 1984, Vol. 21 Issue 3, p335-364
  10. ^ Colin Simmons, "The Great Depression and Indian Industry: Changing Interpretations and Changing Perceptions," Modern Asian Studies, May 1987, Vol. 21 Issue 3, pp 585–623
  11. ^ Dietmar Rothermund, An Economic History of India to 1991 (1993) p 111
  12. ^ Dietmar Rothermund, India in the Great Depression, 1929–1939 (New Delhi, 1992).
  13. ^ Ian J. Kerr (2007). Engines of change: the railroads that made India. Greenwood Publishing Group. ISBN 978-0-275-98564-6. 
  14. ^ I. D. Derbyshire, "Economic Change and the Railways in North India, 1860–1914," Modern Asian Studies, (1987), 21#3 pp. 521–545 in JSTOR
  15. ^ a b R.R. Bhandari (2005). Indian Railways: Glorious 150 years. Ministry of Information and Broadcasting, Government of India. pp. 1–19. ISBN 81-230-1254-3. 
  16. ^ Babu, T. Stanley (2004). "A shining testimony of progress". Indian Railways. Indian Railway Board. p. 101.  Missing or empty |title= (help)
  17. ^ Thorner, Daniel (2005). "The pattern of railway development in India". In Kerr, Ian J. Railways in Modern India. New Delhi: Oxford University Press. pp. 80–96. ISBN 0-19-567292-5. 
  18. ^ Hurd, John (2005). "Railways". In Kerr, Ian J. Railways in Modern India. New Delhi: Oxford University Press. pp. 147–172–96. ISBN 0-19-567292-5. 
  19. ^ a b c R.R. Bhandari (2005). Indian Railways: Glorious 150 years. Ministry of Information and Broadcasting, Government of India. pp. 44–52. ISBN 81-230-1254-3. 
  20. ^ Daniel R. Headrick, The tentacles of progress: technology transfer in the age of imperialism, 1850–1940, (1988) pp 78–79
  21. ^ Awasthi, Aruna (1994). History and development of railways in India. New Delhi: Deep & Deep Publications. pp. 181–246. 
  22. ^ Daniel R. Headrick, The tentacles of progress: technology transfer in the age of imperialism, 1850–1940, (1988) pp 8–82
  23. ^ Wainwright, A. Marin (1994). Inheritance of Empire. Westport, CT: Greenwood Publishing Group. p. 48. ISBN 978-0-275-94733-0. 
  24. ^ R. O. Christensen, "The State and Indian Railway Performance, 1870–1920: Part I, Financial Efficiency and Standards of Service," Journal of Transport History (Sept. 1981) 2#2, pp. 1–15
  25. ^ B. H. Tomlinson, "India and the British Empire, 1880–1935," Indian Economic and Social History Review, (Oct 1975), 12#4 pp 337–380
  26. ^ Baten, Jörg (2016). A History of the Global Economy. From 1500 to the Present. Cambridge University Press. p. 255. ISBN 9781107507180. 
  27. ^ F. H. Brown and B. R. Tomlinson, "Tata, Jamshed Nasarwanji (1839–1904)", in Oxford Dictionary of National Biography (2004) accessed 28 Jan 2012 doi:10.1093/ref:odnb/36421
  28. ^ Baten, Jörg (2016). A History of the Global Economy. From 1500 to the Present. Cambridge University Press. p. 255. ISBN 9781107507180. 
  29. ^ Vinay Bahl, "The Emergence of Large-Scale Steel Industry in India Under British Colonial Rule, 1880–1907," Indian Economic and Social History Review, (Oct 1994) 31#4 pp 413–460
  30. ^ Chikayoshi Nomura, "Selling steel in the 1920s: TISCO in a period of transition," Indian Economic and Social History Review (January/March 2011) 48: pp 83–116, doi:10.1177/001946461004800104
  31. ^ Vinay Bahl, Making of the Indian Working Class: A Case of the Tata Iron & Steel Company, 1880–1946 (1995)
  32. ^ Rajat Kanta Ray, "Indian Society and the Establishment of British Supremacy, 1765–1818," in The Oxford History of the British Empire: vol. 2, "The Eighteenth Century" ed. by P. J. Marshall, (1998), pp 508–29
  33. ^ a b Niall Ferguson (2004). Empire: How Britain Made The Modern World. Penguin Books. p. 216. 
  34. ^ P.J. Marshall, "The British in Asia: Trade to Dominion, 1700–1765," in The Oxford History of the British Empire: vol. 2, "The Eighteenth Century" ed. by P. J. Marshall, (1998), pp 487–507
  35. ^ "His Fortune on TIME". 19 January 1959. Retrieved 16 October 2012. 
  36. ^ One-sixth of Indians were urban by 1950


Further readingEdit

  • Adams, John; West, Robert Craig (1979), "Money, Prices, and Economic Development in India, 1861–1895", Journal of Economic History, Cambridge University Press, 39 (1): 55–68, JSTOR 2118910, doi:10.1017/S0022050700096297 
  • Appleyard, Dennis R. (2006), "The Terms of Trade between the United Kingdom and British India, 1858–1947", Economic Development and Cultural Change, 54: 635–654, doi:10.1086/500031 
  • Bannerjee, Abhijit; Iyer, Lakshmi (2005), "History, Institutions, and Economic Performance: The Legacy of Colonial Land Tenure Systems in India", American Economic Review, American Economic Association, 95 (4): 1190–1213, JSTOR 4132711, doi:10.1257/0002828054825574 
  • Bayly, C. A. (1985), "State and Economy in India over Seven Hundred Years", The Economic History Review, New Series, Blackwell Publishing, 38 (4): 583–596, JSTOR 2597191, doi:10.1111/j.1468-0289.1985.tb00391.x 
  • Bayly, C. A. (2008), "Indigenous and Colonial Origins of Comparative Economic Development: The Case of Colonial India and Africa", World Bank Policy Research Working Paper, 4474 
  • Bose, Sumit (1993), Peasant Labour and Colonial Capital: Rural Bengal since 1770 (New Cambridge History of India), Cambridge and London: Cambridge University Press. .
  • Broadberry, Stephen; Gupta, Bishnupriya (2007), Lancashire, India and shifting competitive advantage in cotton textiles, 1700–1850: the neglected role of factor prices 
  • Clingingsmith, David; Williamson, Jeffrey G. (2008), "Deindustrialization in 18th and 19th century India: Mughal decline, climate shocks and British industrial ascent", Explorations in Economic History, 45 (3): 209–234, doi:10.1016/j.eeh.2007.11.002 
  • Cuenca-Esteban, Javier (2007), "India's contribution to the British balance of payments, 1757–1812", Explorations in Economic History, 44 (1): 154–176, doi:10.1016/j.eeh.2005.10.007 
  • Collins, William J. (1999), "Labor Mobility, Market Integration, and Wage Convergence in Late 19th Century India", Explorations in Economic History, 36: 246–277, doi:10.1006/exeh.1999.0718 
  • Farnie, DA (1979), The English Cotton Industry and the World Market, 1815–1896, Oxford, UK: Oxford University Press. Pp. 414, ISBN 0-19-822478-8 
  • Ferguson, Niall; Schularick, Moritz (2006), "The Empire Effect: The Determinants of Country Risk in the First Age of Globalization, 1880–1913", Journal of Economic History, 66 (2): 283–312, doi:10.1017/S002205070600012X 
  • Ghose, Ajit Kumar (1982), "Food Supply and Starvation: A Study of Famines with Reference to the Indian Subcontinent", Oxford Economic Papers, New Series, 34 (2): 368–389 
  • Grada, Oscar O. (1997), "Markets and famines: A simple test with Indian data", Economic Letters, 57: 241–244, doi:10.1016/S0165-1765(97)00228-0 
  • Guha, R. (1995), A Rule of Property for Bengal: An Essay on the Idea of the Permanent Settlement, Durham, NC: Duke University Press, ISBN 0-521-59692-0 
  • Habib, Irfan (2007), Indian Economy 1858–1914, Aligarh: Aligarh Historians Society and New Delhi: Tulika Books. Pp. xii, 249., ISBN 81-89487-12-4 
  • Harnetty, Peter (July 1991), "'Deindustrialization' Revisited: The Handloom Weavers of the Central Provinces of India, c. 1800-1947", Modern Asian Studies, Cambridge University Press, 25 (3): 455–510, JSTOR 312614, doi:10.1017/S0026749X00013901 
  • Imperial Gazetteer of India vol. III (1907), The Indian Empire, Economic, Published under the authority of His Majesty's Secretary of State for India in Council, Oxford at the Clarendon Press. Pp. xxx, 1 map, 552. 
  • Kumar, Dharma; Raychaudhuri, Tapan; et al., eds. (2005), The Cambridge Economic History of India: c. 1757 – 2003, Cambridge University Press. 2ND ED. Pp. 1078, ISBN 0-521-22802-6 
  • McAlpin, Michelle B. (1979), "Dearth, Famine, and Risk: The Changing Impact of Crop Failures in Western India, 1870–1920", The Journal of Economic History, 39 (1): 143–157, doi:10.1017/S0022050700096352 
  • Ray, Rajat Kanta (1995), "Asian Capital in the Age of European Domination: The Rise of the Bazaar, 1800–1914", Modern Asian Studies, 29 (3): 449–554, JSTOR 312868, doi:10.1017/S0026749X00013986 
  • Roy, Tirthankar (Summer 2002), "Economic History and Modern India: Redefining the Link", The Journal of Economic Perspectives, American Economic Association, 16 (3): 109–130, JSTOR 3216953, doi:10.1257/089533002760278749 
  • Roy, Tirthankar (2006), The Economic History of India 1857–1947, Second Edition, New Delhi: Oxford University Press. Pp. xvi, 385., ISBN 0-19-568430-3 
  • Roy, Tirthankar (2007), "Globalisation, factor prices, and poverty in colonial India", Australian Economic History Review, 47 (1): 73–94, doi:10.1111/j.1467-8446.2006.00197.x 
  • Roy, Tirthankar (2008), "Sardars, Jobbers, Kanganies: The Labour Contractor and Indian Economic History", Modern Asian Studies, 42: 971–998, doi:10.1017/S0026749X07003071 
  • Sen, A. K. (1982), Poverty and Famines: An Essay on Entitlement and Deprivation, Oxford: Clarendon Press. Pp. ix, 257, ISBN 0-19-828463-2 
  • Studer, Roman (2008), "India and the Great Divergence: Assessing the Efficiency of Grain Markets in Eighteenth- and Nineteenth-Century India", Journal of Economic History, 68: 393–437, doi:10.1017/S0022050708000351 
  • Tirthankar, Roy. "Financing the Raj: the City of London and colonial India 1858–1940." Business History 56#6 (2014): 1024-1026.
  • Tomlinson, B. R. (1993), The Economy of Modern India, 1860–1970 (The New Cambridge History of India, III.3), Cambridge and London: Cambridge University Press., ISBN 0-521-58939-8 
  • Tomlinson, B. R. (2001), "Economics and Empire: The Periphery and the Imperial Economy", in Porter, Andrew, Oxford History of the British Empire: The Nineteenth Century, Oxford and New York: Oxford University Press, pp. 53–74, ISBN 0-19-924678-5 
  • Travers, T. R. (2004), "‘The Real Value of the Lands’: The Nawabs, the British and the Land Tax in Eighteenth-Century Bengal", Modern Asian Studies, 38 (3): 517–558, doi:10.1017/S0026749X03001148 
  • Wolpert, Stanley, ed. Encyclopedia of India (4 vol. 2005) comprehensive coverage by scholars