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India Economics and Political

History (1757-1990)
Lecture 1 20th June 2016
Rajesh Bhattacharya
Office Hours Monday/Thursday: 4:30 to 6 PM
Colour code
1. Black Lecture Notes
2. Green Web Notes
3. Blue
Text Book Notes
This course primarily focuses on the Industrialization of India
Majority of the course will cover the 1940-1990 period
Class Assignment: 30% consisting of 5 quizzes
Write Precise answers in Quizzes. They will be ten minutes long.

Large growth in recent period due to Capitalism, Industrialization.

Industrialization Drove Divergence and turned things around


EurE

http://economics.mit.edu/files/4127
Europeans colonized different countries differently. Where population was scarce,
they brought in European Values and Systems (USA) and because of that these
countries benefitted.

Where Urbanization was already high, the European set up institutions primarily
to exploit.
Below is the table showing the levels of industrializations in countries. It is
normalized at 100 units of industrialization in 1900 UK
UK
Europ
e
India
China

1800
16

1860
64

1913
115

1953
210

1980
325

8
6
6

17
3
4

45
2
3

90
5
5

267
16
24

Many reasons have been put forth to explain why certain economies havent
done well. Some of the reasons that were assumed are:
1. Geography
Montesquieu said that people in tropical are lazy, lack inquisitiveness, are
not hard working or innovative
A more sophisticated version by Jeffrey Sachs is that tropical countries are
poor due to tropical diseases etc.
However, there is No Empirical Data to prove the same
2. Culture Hypothesis
Early Max Weber version Protestant Reformation in Europe was
conducive to capitalism. Hinduism, Buddhism are more introspective
religions and hence are not conducive to capitalism.
The more modern version is that Africans are poor because they lack a
good work ethic. Latin Americans are profligate.
No Empirical Data again to prove the same.
However European Colonization provides a natural experiment to show that
Institutions play a major role in deciding whether an economy will succeed or
not.
Densely settled and highly urbanized colonies ended up with worse institutions,
while sparsely settled and non-urbanized areas received a flux of European
immigrants and these Europeans set up the same European Institutions there.
Read the first essay of the handbook. Covers all these points effectively

Lecture 2 24th June 2016


Colonialization of the Indian Economy 1757-1900
1. Pre-Colonial Economy
Land revenue defined the basic elements of polity. Upon the expenditure
of this large surplus was based the urban economy of pre-colonial india.
Subordinate to the land revenue, a share of surplus went to zamindars.
Nominal share varied from one tenth of land revenue in northern India and
Bengal to one fourth in Gujarat. Recorded share prices of zamindari rights
suggest that the income expected from them was less as compared to the
land revenue. The village was usually the unit of assessment of land
revenue and upper strata of peasants imposed various rates on peasants
below them to make up the revenue demanded from the entire village.
2. Tribute from Conquest
British secured the power to levy and collect land revenue and other
taxes. East India company then was virtually able to buy without having to
pay and then sell at full price. Profits in turn could be used to buy Indian
commodities. Buyer had a monopoly, so they could buy at low price and
sell anywhere in the World. British Imports from East India company
increased forming 24% of the total import share in 1797-98 from 12% in
1750-51.
3. Permanent Settlement,1793
Major source of profit for the British was not commerce till now but land
revenue. Hence Maximization of land revenue led to maximization of
profits. The right to collect revenue was given to the highest bidding
zamindar. Hence the this led to a tremendous increase in revenue. Even
the famine year of 1769-70 caused no decline in revenues. This pressure
among revenue payers-peasants and zamindars- led to a discussion on
Permanent Settlement. Company resigned claims to any increase in land
revenue beyond a figure now to be finally settled. Share of zamindar was
fixed at only an eleventh part of land revenue to be assessed on the
peasants. However, the Zamindars could not profit as there was
subsequent decrease in prices and many of them found it difficult to
collect rents from the peasants to meet the fixed revenue demand of the
Company. They had no choice but to sell out.
4. Siphoned Surplus
Thus, there was no relaxation of pressure against the zamindars. What the
pressure yielded was the drain of wealth to England. This enormous
transfer of wealth had significant consequences for both India and
England.
5. Indian Trade Pattern Disrupted
During the drain from 1783-84 to 1792-93, we find that the tribute
amounted to 9 percent of the GNP. There was a considerable decline in
Bengal in urban employment of troops, retainers, craftsmen, which was
supported by the previous appropriators of surplus. Transfer of wealth took
the form of export of Eastern India commodities and this led to disruption.
Gujarat silk manufacturers relied on silk imports from Bengal. However,
with exports of silk, they were left ideal. It also affected merchants of
Bengal which based their livelihood in selling these products
6. Colonial Base for Industrial Revolution

Tribute amounted to over 2 percent of the National Income. The total rate
of Capital formation amounted to 7 percent of national Income. Hence
tribute contributed a huge 30 percent. This was channelled to Industrial
Revolution. Industrial Revolution led to an increase in capital formation
and this led to tremendous pressure to sustain it. Pressure for tribute could
not be relaxed. Industrialization also led to the subjugation of the Indian
Market. It led to an increase in cotton production much more than the
domestic demand of Britain. Hence it led to a large number of exports of
cotton competing directly with Indian textiles market. It also became
necessary for British to enter the Indian Market. This marks the second
stage of colonialism in India. Hence there was a duality of Realization of
the tribute and getting the benefits out of the Indian Market.
7. The Utilitarian
At the end of 18th century the official doctrine seemed to be that of a
limitation of revenue-demand was desirable in order to create private
property in land which would in turn lead to extension of cultivation and
growth of commerce. However, the directors of the company had already
been dissatisfied with the Permanent Settlement. The price increase of
goods led to an increase in land revenue and hence increase in revenue
collected by zamindar. The zamindars had to give only a fixed revenue to
the Company. Hence land revenue rates werent significantly decreased.
8. Pressure on Agrarian Economy
Although land revenue was reduced on paper, scientific land surveys,
inclusion of revenue-free lands led to an increase in land revenue
collected. Revenue in preceding regimes was fixed as a share of crop and
varied according to crop cultivated. Land revenue under the British was
based on assessment of what and how much it ought to produce and not
on what crop it actually raised.
9. Revenue Collection Stepped Up
Statistical studies suggest an overall increase of about 88 percent in the
land revenue during the forty years following 1806-7. The prices during
this period increased at the beginning but became stable after 1818.
Hence land revenue increased in real terms by as much as 70 percent
during the first half of the 19th century.
10.
Decline in Food Grain Prices
From 1820 to 1850, the total revenue collections increased substantially in
all the three major zones outside the permanently settled territories even
though prices reduced drastically in this period. The only factor which
might relieve the pressure on the agrarian economy exerted by real
taxation on such scale, could be a substantial increase in population
causing a dramatic extension of cultivation and therefore decline in the
incidence of land revenue per acre as well as per capita. Authorities
agreed that there was a tremendous increase in population in 1800s,
however this was based on spurious data and population didnt increase
substantially
11.
Spurious Demographic Evidence
Analysis suggests that the population wouldnt have increased much
beyond 15 percent during first half of the 19 th century and 10 percent
during the next 20 years. However, the British assumed great population
growth to justify the economic benefits largely by underestimating
population in the earlier census

12.
Impoverishment of the Peasantry
As British had far greater power control, they could disregard the village
unit. They relied on upper peasantry to pressurize people of the lower
strata for revenue
13.
Zamindars in Trouble
A large land changed hands among the Zamindars. Mutinity of 1857 can
be regarded as the Peasant Revolt led by Zamindars.
14.
Lancashire Captures India Market
During the period, about 1800-1850, the colonial objective changed from
seizing Indian commodities to seizing the Indian Market. English export of
manufactures, textiles in the first place not only wiped out the Indian
exports of cotton goods, but also entered India to challenge Indian
Manufacturers in their home market. British Manufacturers were supplying
as much as 9.4 percent of cloth consumed in India by 1839. In 1860, that
number rose to 27 percent.
15.
Deindustrialization and Urban Decline
Urban decline was initiated by the diversion of surplus from Indian rulers
to the company. It was compounded by Urban unemployment forced by
the English Manufacturers. Many data suggest that the was a decrease in
Urban Population.
16.
Obstructions to Tribute Realization
Extraction of tribute and the seizure of the markets of Indian
manufacturers could not proceed independently. One reacted on the other.
Extraction of tribute was in the way of capturing of market share by
Lancashire. Hitherto, the realization of tribute from India had taken the
form of export of Indian manufactures and this was a win win situation.
Britain obtained wealth and capital and India obtained prosperity, industry,
population and revenue. But competition by British manufactures
themselves put an end to this connivance. Theoretically, India losing its
market share to manufactures, could have diverted its raw cotton to India,
but Indias raw cotton wasnt preferred. By 1830, the realization problem
was solved by Opium
17.
Indian Opium to China
Indian Opium to China was key to the economic exploitation of China and
to maintain the tribute levels
18.
Capital in Reverse Flow
A new stage set in by the middle of 19th century for British Capitalism.
Capital Investment at home reached saturation point with the complete
victory of machine industry. Once this point had passed the export of
capital began in earnest. The capital exported was pre-eminently for
railway construction and the railways enabled Britain to carry her
conquest of the Indian market to its maximum extent.
19.
Conquest by Rail
The railways helped Britain to retain India still more securely as one of her
principal markets Britains exports to India accounted for 9.15 percent of
her total exports in 1846-55, it was 12.6 percent in 1878-85.
20.
Commercialization of Agriculture
The commercialization of Agriculture (producing opium, raw cotton, jute)
led to a decline in food grains for home market. The spread of railways
exacerbated it. Hence there were acute famines. Under the new regimes
(after the company rule ended) the emphasis shifted from the levy of

direct tribute through land revenue to the exploitation of India as a market


and source of raw materials.
21.
Zamindars to Landlords
Mutinity had shown how dangerous it was to be left without faithful allies.
Another factor was an increases in prices from 1850 to 1900. Prices rose 3
times in that period. The result of increasing rents and a relatively
stationary revenue demand was that the zamindars share of rental as
compared with land revenue expanded considerably. This was the basis of
the formal conversion of zamindar to modern Indian LandLord
22.
New Classes
Imperialism gave birth to 2 new classes in Indian society, the bourgeoisie
and the industrial proletariat. The irreconcilable contradictions that
emerged between imperialism and its junior ally, the landlords, on the one
hand, and the bulk of the Indian people, inclusing the bourgeoisie, the
working class and the peasantry on the other, laid the seeds of the
struggle for national liberation.

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