ECONOMIC POLICY

• The modus operandi for economic exploitation changed with changing times, the character of the drain of wealth from India which operated on Mercantilist principles under East India Company changed the crown and took the form of exploitation through the policy of forced laissez-faire that is free trade at later stage took the form of British India Finance Capitalism.
• Many European countries imposed high customs duties to protect their indigenous industries against the dumping of British industrial products. To compensate British industry for its loss of markets in Europe, the British government forced the government of India to adopt the policy of free trade and open the Indian market for the unlimited sale of British industrial goods
• Land tenure and land revenue policy of the British Indian government divided the agricultural class into two rival camps –the zamindar class versus the tenant
• Industrial workers unable to compete with the British industrial products
• Dadabhai Naoaroji, M.G. Ranade, G.V Joshi and R.C Dutt criticized the economic policies of the Indian government. Dada Bhai Naoroji was the first person who exposed the true nature of British rule in India through his paper English Debt to India.
• The visible forms of drain – a)gifts and bribes from Mir Jaffer, Mir Qasim,

1. Three Phases of Economic Exploitation

1. Period of Merchant Capital (Mercantilism) From 1757 to the End of the 18th Century. During this phase specific objective of the British colonial structure was to mobilize the resources from India to invest in trade .so during this phase company emphasized the maximization of land revenue. The British started to purchase Indian goods from a part of the collected land revenue and amount plundered from Bengal. So the phenomenon of the Drain of wealth came into existence. During this phase company tried to maintain a traditional administrative structure.
2. Period of Industrial Capital (Free Trade Capitalism)-Developed During the 19th Century. India was converted into an importer of manufactured goods and an exporter of raw materials. As India had to develop as a market for industrial goods from Britain a series of changes were brought in India. For example-modern transport communication lines developed, English education was introduced,
3. Period of Finance Capital From Closing Decade of the 19th Century to 1947 There was the transfer of capital from Britain to India for the construction of Railways and the development of plantations, shipping industries etc.

2. Mercantilist Phase

The basic idea was the regulation of all economic activity. Twin aim- To have a favourable balance of trade and To promote bullion in the home country. The political power that the company acquired was used to control the economy of India. 

Period of Colonial Plunder 1757-72:  Sale of unauthorized dastaks. The oppression of the artisan Company’s agent compelled weavers to sell cloth at a low and dictated price. The company’s servants monopolized raw material

Drain of Wealth: In the mercantilist concept an economic drain takes place if gold and silver flow out of the country as a consequence of an adverse balance of trade. Constituents of Economic Drain

Interest on foreign capital Investment:  Interest and profits on private foreign capital were another leakage from the national income stream

3. Economic Consequences of the Drain

3.1. Deindustrialization: Decline of Indian Handicraft 

• During the first half of the 19^th century, while Western countries were experiencing industrialization, India suffered a period of industrial decline
• The peculiar situation in India was different from European countries for 2 reasons first India witnessed a steep decline in handicrafts and second unlike Europe India was not compensated by sufficient rise of modern industries
• 19 19th century was a period of Industrial capital that is Britain’s rising industrialist and trading interest launched a new economic offensive based on principles of free trade against India.
• So far India has been an exporting country now onwards become an importing country. English twists and cotton stuffs flooded Indian markets, spelling ruination of the Indian weaving industry.

1. Disappearance of native Indian courts which patronized fancy arts and handicrafts
2. European bureaucracy normally patronized English-made products and Indian western Indian-educated professional class imitated European standards
3. Forcing British free trade on India
4. Imposing heavy duties on Indian manufacturers in England
5. Export of raw materials from India
6. Transit and customs duties
7. Granting special privileges to British manufacturers in India
8. Building railways in India
9. After the victory at Plassey and Buxar, the English East India Company exported raw materials like cotton from India to Manchester and Lancashire mills, the Indian weavers were deprived of raw materials, either it was not available to them or if available at a much costlier rate
10. The manufactured English goods especially cotton cloth were much cheaper as they were made in mills whereas the Indian cloth was a handloom product so relatively costlier
11. The Charter Act of 1813 ended the monopoly of the East India Company except in tea trade and trade with China. Hundreds of English companies started coming and selling their products in a free market”
12. Almost all European nations adopted the protectionist policy against Indian goods except Holland.
13. The local Rajas, Nawabs, and their official were regular customers of various indigenously manufactured items. The annexation of Indian states meant the loss of the biggest market for Indian manufacturers.
14. The modern means of transportation especially railways, and roads made the ruin of Indian industries inevitable.

Impact of De-Industrialisation:  The ruining of industries made India primarily an agricultural economy and Pressure on agriculture. 

4. Ruralization of the Indian Economy

• With deindustrialization Indian economy become more and more agricultural. Millions of manufacturing classes in industrial towns were rendered jobless and drifted from towns to villages for livelihood leading to ruralization or peasantization of the Indian economy
• The Industrial Revolution brought changes in England‘s economic development, its expanding textile industries needed raw materials for its factories and markets for the sale of its industrial products, the need was felt to replace mercantile capitalism with free trade capitalism.
• Charter Act 1833 removed all restrictions on European immigration and acquisition of landed property in India
• British capital flowed to develop India’s plantation industry in –tea, coffee, indigo, and jute cultivation
• Act XIII of 1859 and Inland Immigration Act of 1882 made breach of contract a criminal offence and authorized the tea planters to arrest a runaway labourer without any warrant.

4.1. Commercialisation of Indian Agriculture 

• Certain specialized crops began to be grown not for consumption in the village but for sale in the national and even international markets.
• The commercialization trend reached the highest level of development in the plantation industry.
• To meet the excessive land revenue demand of the state and the high rates of interest charged by moneylenders, the cultivator perforce had to rush a part of his harvest into the market and sell it at whatever price it fetched.

• The cash crops required more investment, for bigger thread high high-yielding seeds were required to grow the cotton
• High investment forced the peasants to borrow money from planters and money lenders who trapped them and charged heavy interest.
• Due to the export of raw materials like cotton the Indian manufacturer found it extremely difficult to purchase it. It became one of the reasons for deindustrialization in India.

5. Entry of British Finance Capital in India 

Forms of Investment

• British capital investment in India normally took two basic forms
• Loans raised in England by the secretary of state on behalf of the Indian government and by semi-public organizations mostly for investment in railways, irrigation, developments of ports, hydroelectric projects etc.
• Foreign business investments in India
• It has been estimated that before 1914 nearly that before 19014 nearly 97% of British capital investments in India were diverted towards the completion of economic overheads mainly railways, road transport, merchant shipping etc, the mining industry, development of financial houses

Towards promotion of auxiliaries calculated to fuller commercial exploitation of India’s natural resources. British capital went into activities that were complementary to British industries and were in no way planned for the industrial development of India.

5.1. Revenue Settlement Systems

5.1.1. Zamindari System or Permanent Settlement

• In 1772 Warren Hasting, the Governor -General leased the right to collect the revenues to the highest bidders for five years. This settlement proved a failure.
• In 1777 quinquennial settlement was removed and a system of annual leases was introduced. This further complicated the matter.
• In 1786 the Court of Directors urged Lord Cornwallis to make a decennial settlement with zamindars.
• Initially the settlement was made for ten years in 1790 but on March 22, 1793the settlement was fixed in perpetuity.
• Permanent settlement was implemented in Bengal, Bihar, Orissa, and Benares and the Northern part of Tamil Nadu., covering an area of nineteen per cent of British India.

• The zamindars were made owners of the land as long as they were paying revenue.
• Zamindars were allowed to sell or purchase the land and evict the peasant, in case of non-payment of rent.
• Out of the collected rent, 89% went to the state and the rest 11% to the zamindars.
• The government had no direct relation with the ryots.

• The government was assured of a fixed income from land revenue.
• The company was saved from the expenses of periodical assessment and settlements.
• It created a class of loyal people that is zamindars whose economic interests demanded the continuance of British rule.

• It created a class of exploiters –absentee landlords and their agents. The arrival of new zamindars in the rural areas –Since most of the zamindars failed to deposit land revenue on time, their zamindari right was given to a new zamindar.
• The poor peasants to pay rent on time had to borrow money from Mahajans.
• Agriculture and economic progress of Bengal, Bihar, and Orissa were affected.

5.1.2. Ryotwari Settlement

• The pioneer of the Ryotwari settlement was Thomas Munro
• Under this land revenue was collected directly from the peasants,
• It was first implemented in Madra's presidency in the early nineteenth century
• This settlement was also implemented in Gujarat, Central provinces, Berar, Burma, Assam and Coorg
• Ryotwari settlement was implemented in 52 % of British India.
• The peasants in this system were made owners of the land and 50% of the net produce was fixed as land revenue.

• The settlement was not permanent but for a fixed tenure, normally for 30 years
• The government collected land revenue mainly in cash.
• The government had control over non-occupied and other community land unlike in Permanent settlement.
• Peasants were treated as owners of lands

5.1.3. Mahalwari Settlement

• The word Mahal means village.
• Under the Mahalwari system, the settlement was made with Mahal instead of individual peasants.
• The system was implemented in the western part of the United Provinces, Punjab, and some parts of the central provinces.
• Halt Mcanzee is believed to be its pioneer.
• Land revenue settlement made with Mahal or gram. Local zamindar was responsible, on behalf of all peasants, for the payment of land revenue.
• Initially two-thirds of net produce was fixed as land revenue but later it was reduced to one-half of net produce.
• The peasant had to deposit the revenue to Zamindar.
• The peasant was free to sell or mortgage their land
• The settlement was made for thirty years and in some places for twenty years.

Benefits: Collection of land revenue from one person instead of all peasants of the village was easier and cheaper for the government. The system was already prevailing in some areas.