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There is some consensus among Indian historians that when the East India Company first came down to India, the country was seen as a glittering land of fabulous wealth and opulence. William Dalrymple’s magnificent recent work The Anarchy, for example, contains a brilliant anecdote that illustrates this fact. In 1608, Captain William Hawkins, a gruff sea captain, someone who seemed more akin to a pirate than a captain actually, landed on the port of Surat, now in Gujarat, thereby becoming the first commander of an East India Company vessel to land in India. Hawkins would travel northwards, enter the Mughal city of Agra and meet the emperor Jehangir himself. As Dalrymple notes, Hawkins was able to sustain the Mughal emperor’s interest for only a while before the latter lost interest in Hawkins, and dispatched him off to England by gifting him an Armenian Christian woman as a wife. This encounter explains a very important contrast: the rich disparity existing between India and England, a disparity that only reverses itself by the time British rule ends on August 15, 1947. One can interpret this meeting between Hawkins and the Mughal emperor not just as a classic encounter between the east and the west – which it was, by all means – but also how different the economic conditions were between the two regions.
In a way, this rich disparity in terms of economic conditions, formed the very backbone of British rule in India. But there are layers of complexity which need to be explained. To begin with, at the very dawn of British conquest of India, in the early years of the 18th century when under Emperor Aurangzeb, the Mughal power had reached its zenith, India’s share in the world economy was a whopping 23 per cent, which as Shashi Tharoor notes, was as large as all of Europe put together. Moreover, in the year 1700, again as Tharoor notes quoting the economic historian Angus Maddison, India’s share in the world economy stood at 27 per cent, and for valid reasons, because it was the time when Aurangzeb’s royal treasury would rake in as much as £100 million only in tax revenues, other incomes separate. And now contrast these staggering figures with what India’s share was in 1947, the year British departed. Simple answer: it had dropped to 3 per cent.
Now comes the big question. How exactly did this happen? What were the processes by which this occurred? And connected to this is another important question, how badly did British rule impact Indian economy, and is it this legacy that we are still grappling with, 75 years since the English departed from the Indian shores. As we celebrate our 75 Years of Independence, it is important, crucial even, to revisit some of these ghosts of our past, if only as an exercise in catharsis, and if only as an attempt to exorcise these historical demons.
One crucial area where we can clearly see this legacy of colonial rule is in the discussion of poverty. As historians have noted, in the discussion of poverty, the reliance is usually placed on economic indicators, and less on its institutional and historical character. One man who clearly understood its historical character was Dadabhai Naoroji. Naoroji, in his famous book, Poverty and Un-British Rule in India, published in 1876, almost 20 years after the First War of the Indian Independence, very explicitly laid out what he called the ‘drain theory’, which for him was at the very heart of British rule, almost operating as a political ideology of sorts. Put simply, according to this drain theory, the alien ruler extracted large part of revenue from the colonised region in the form of export surplus and transported it to England. But Naoroji, although the most forceful advocate of drain theory, was not the first to realise this. In fact, the idea of Britain extracting Indian revenue is as old as British colonialism, and dates back to its very initial years. In fact, and quite ironically, one of the first person to propound this idea was actually a British, Alexander Dow, who was talking about as far back as the 1770s. Raja Ram Mohun Roy, influenced by this legacy, became the first Indian to work out the mechanism by which Britain was operating the Indian economy.
Before we go into the specifics of this drain theory, it is imperative that we first clarify the nature of trade that existed between the English East India Company and the Indian region. As many historians have argued, the very nature of the Company’s trading practices was based primarily on the principle that they had to buy goods from India, in exchange for bullion. Why exactly bullion one might wonder. But the simple answer to this is that in India, there was little to no demand for finished European goods, unlike in Europe where Indian goods, such as tea, textiles, spices, and so on, became so popular that they started to percolate inside the very popular culture of Europe. By selling these goods, the Company earned huge profits. As the historian Rama Dev Roy shows in one of her papers, between 1601 and 1612, cargo worth 200,540 was carried by the Company ships, of which a whopping 69 per cent was bullion.
History is an exercise in irony. And nowhere is it more clear than in the history of British colonialism. What the British were scared of before Plassey – the drain of wealth away from the West and into the coffers of Indian princes and rulers – is exactly the policy they began to implement almost immediately after the fall of Bengal. And no one explains the process better than Dow, who had spent over 20 years in the British army in Bengal, and so had a ring-side view of what was happening. As Dow argued, "The English, the Dutch, the Danes and the Portuguese and the various nations of eastern and western Asia taken together poured into this bottomless pit a total volume of trade worth, at a conservative estimate, about one million and nine thousand pounds." Dow estimated that the total wealth drained from Bengal, since Plassey amounted to 1,477,500, which included the value of British exports, along with the private fortunes of Company officials, such as Lord Hastings and Clive. Another famous name who understood what the British were doing to India, and spoke out fiercely against it, was the great conservative thinker, Edmund Burke. In his famous 9th Report from the Select Committee of the House of Commons, Burke showed that a cogent economic policy should be a two-way street. If Britain is exporting material into India, it would have implied a process also of reciprocity, like it was earlier, where while Britain took materials out of India, but supplied India with bullions. But such a reciprocal policy was never implemented. As he fiercely castigated his colleagues, "the country [India] has suffered what is tantamount to an annual plunder of its manufactures and its produce to the value of twelve hundred thousand pounds."
By the time the 18th century ends and the 19th century begins, especially towards the fag end of the Company’s rule in India, right before the First War of Indian Independence, we see many Indian intellectuals and journalists talking more freely about British economic policy towards India and its impact. An editorial that appeared in 1853 in the Bengali newspaper Somprakas, which was edited by the fiery Dwarkanath Vidyabhusan, argued how the British military expenditure was a bottomless pit which can only be satiated by Indian revenue. Another article – called Poverty of India and the Revenue of the British Government – published in the same newspaper, argued how in India agriculture was the primary source of income, but even then, industry contributed the largest share in many Indian regions. Despite this fact, the article argued, no effort was made by the British to develop industries.
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In this editorial, two key words stand out – agriculture and industry. And an analysis of these two sectors shows us even more clearly the nature of British rule in India. About agriculture, historians have argued that commercialisation of agriculture – which is in favour of differentiation within peasantry, accumulation of capital, and using agriculture to produce for the market, but in India, the benefits of commercialisation did not come down to the peasants. The issue of indigo plantation is a case in point. The plantation of indigo in eastern India was fostered and paternalised by the Company from 1788 when the government offered monetary advances to ten planters trying to grow the crop in Bengal.
The historian Shekhar Bandhopadhyay argues that since then the indigo industry was never able to function as a plantation economy, which meant that the planters had no right to buy land, at least till 1829, and had to, therefore, persuade, which later on devolved to using force, the local peasants to accept advances and cultivate indigo instead of a food crop. This created enough scope for friction, because demand remained uncertain, and it was with an eye on the needs of the remittance trade, rather than the requirements of English textile manufacturers, that the amount of production was monitored. The system became more exploitative and coercive day by day, leading to the indigo rebellion in 1859-60,” Bandhopadhyay notes.
But here too there is a complication. While the ideal logic goes that peasants were forced to cultivate cash crops because it had higher revenue demand than food crops, but as Bandhopadhyay argues, there is always a correlation, and a positive one at that, between the price of the crop cultivated and its acreage, which points towards the profit motive as being clearly present behind a peasant’s decision to choose one crop over the other. But here too it was only the rich peasantry who were able to choose a cash crop, and even they too remained vulnerable, in the face of absence of any government support system to buffer the brutality of the market forces from unleashing its might on a farmer. An example can illustrate this. In the wake of the American Civil War, pockets of prosperity was seen in the Deccan cotton belt, because the War had stopped the export of cotton from the American South. But as soon as the War ended, this prosperity disappeared, leading to famine and agrarian riots in the region in the 1870s.
Moreover, British economic policies directly impacted the lives of everyday Indians. The example of the 1882 salt tax is an important one to illustrate this. The 1882 law had regulations that enforced a virtual government monopoly on the manufacture of salt. And since the very beginning, this particular legislation had attracted Mahatma Gandhi’s attention. Writing way back in 1891 in the periodical The Vegetarian, Gandhi observed:
“The tax levied on salt in India has always been a subject of criticism. This time it has been criticized by the well-known Dr. Hutchinson who says that “it is a great shame for the British Government in India to continue it, while a similar tax previously in force in Japan has been abolished.” Salt is an essential article in our dietary. It could be said that the increasing incidence of leprosy in India was due to the salt tax. Dr. Hutchinson considers the salt tax a barbarous practice, which ill becomes the British Government.”
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And when he starts his famous Civil Disobedience Movement, Gandhi realised the emotive component of using salt as the fulcrum of his movement. Thus, the Dandi March, which began on March 12 1930, became an iconic event in the history of India’s freedom struggle, which saw Gandhi walk to the Gujarat seashore where on April 6 he publicly violated the salt laws. The march attracted enormous publicity both in India and overseas, and was followed by wholesale illegal manufacture and sale of salt, accompanied by boycott of foreign cloth and liquor,” notes Bandhopadhyay.
The history of Indian economy that the British bequeathed to our founding fathers was a battered one, and it is only by properly understanding its various nuances can we also understand the present. And most importantly also understand the problematic policy decisions we ought to avoid. As we march on to celebrate our 75 Years of Independence day, it is a lesson worth remembering.