By Nazarul Islam, TIO: There is a general consensus among historians that Britain drained a total of nearly $45 trillion from India, during the period 1765 to 1938. It’s a staggering sum. For perspective sake, $45 trillion is 17 times more than the total annual gross domestic product of the entire UK today.
How did all this come about?
Here’s how it worked. The East India Company began collecting taxes in India, and then cleverly used a portion of those revenues (about a third)to fund the purchase of Indian goods for British use. In other words, instead of paying for Indian goods out of their own pocket, British traders acquired them for free, “buying” from peasants and weavers using money that had just been taken from them.
It was a scam – theft on a grand scale. Yet most Indians were unaware of what was going on because the agent who collected the taxes was not the same as the one who showed up to buy their goods. Had it been the same person, they surely would have smelled a rat.
Some of the stolen goods were consumed in Britain, and the rest were re-exported elsewhere. The re-export system allowed Britain to finance a flow of imports from Europe, including strategic materials like iron, tar, and timber, which were essential to Britain’s industrialization. Indeed, the Industrial Revolution depended in large part, on this systematic theft from India.
On top of this, the British were able to sell the stolen goods to other countries for much more than they “bought” them for in the first place, pocketing not only 100 percent of the original value of the goods, but also the markup.
And, to answer how did this had worked: Essentially, anyone who wanted to buy goods from India would do so using special Council Bills – a unique paper currency issued only by the British Crown. And the only way to get those bills was to buy them from London with gold or silver. So traders would pay London in gold to get the bills, and then use the bills to pay Indian producers.
When Indians cashed the bills in at the local colonial office, they were “paid” in rupees out of tax revenues – money that had just been collected from them. So, once again, they were not in fact paid at all; they were defrauded.
Meanwhile, London ended up with all of the gold and silver that should have gone directly to the Indians in exchange for their exports.
This corrupt system meant that even while India was running an impressive trade surplus with the rest of the world – a surplus that lasted for three decades in the early 20th century—it showed up as a deficit in the national accounts because the real income from India’s exports wasappropriatedin its entirety by Britain.
Today, when confronted with a question of why our subcontinent has been so poor, we have the same response regardless of where we live, in the countries of the Indian peninsula: the three centuries of British subjugation! This impression has been more deeply ingrained in recent times, thanks to the genius Dr. Shashi Tharoor’s eloquent arguments against colonial rule in popular media.
It’s undeniable that India had lost its position as one of the great trading areas of the world, and was poorer after colonial rule, than before it was annexed. However, to put the blame squarely on the shoulders of the British is to give the small minority in charge of a minimal state— a little too much credit. The real culprit, I argue, was market forces tilted to favor the West — a beast, that we continue to struggle with, even today.
After the rule of the last Great Mughal, Aurangzeb—Mughal Empire, overextended and fiscally strained, began a slow decline. Its vassals and rivals tore it apart. As the Indian subcontinent entered a period of protracted political strife, this led to changes in the structure of the economy as well. For starters, bankers and merchants began to rely more on loans to local warlords than investing in merchants and trade for income.
And, trade in general was limited to practically autonomous regions, with agricultural areas supplying urban areas, where specialized and increasingly out-of-business artisans served the declining aristocracy. Seaborne trade had flourished but was dominated by wealthy caste and family-based companies who could afford to build ships. These couldn’t compete with European joint-share companies which could mobilize more capital, and spread risk among far more shareholders.
Meanwhile, the decline of the central bureaucracies led to an increasing number of zamindars who started off as tax farmers but then became independent, de facto. The vast majority of the population scratched out a hard existence in the agricultural hinterland. All this needs to be seen in the light of larger changes in the global economy.
After the rule of the last Great Mughal, Aurangzeb—the Mughal Empire, overextended and fiscally strained, began a slow decline. Its vassals and rivals tore it apart. As the Indian subcontinent entered a period of protracted political strife, this led to changes in the structure of the economy as well. For starters, bankers and merchants began to rely more on loans to local warlords than investing in merchants and trade for income.
In India, trade in general was limited to practically autonomous regions, with agricultural areas supplying urban areas, where specialized and increasingly out-of-business artisans served the declining aristocracy. Seaborne trade flourished but was dominated by wealthy caste and family-based companies who could afford to build ships. These couldn’t compete with European joint-share companies which could mobilize more capital, and spread risk among far more shareholders. Meanwhile, the decline of the central bureaucracies led to an increasing number of zamindars who started off as tax farmers but then became independent, de facto.
The vast majority of the population scratched out a hard existence in the agricultural hinterland. All this may be seen in the light of larger changes taking place in the global economy.
As industrialization took hold in Europe and the “satanic mills” were established, the cost of labour decreased, and the productivity of labour increased. For factories to become more profitable, cheap raw material was needed (which, thanks to limited land in Europe, wasn’t easily available). Enter the New World with its unlimited land, and India with its massive agricultural population. The Mughals had up to this point kept the British limited to a few ports in India, enabling Indian handicraft industries to survive.
Have we ever taken into account that cost of all Britain’s wars of conquest outside Indian borders were charged always wholly or mainly to Indian revenues?
All that had changed as the empire declined and Britain gradually became the premier European power in India. Existing institutions were reshaped in its own favour. Investment in public goods began to take off, and a uniform currency was introduced. The confusion arising out of competing revenue rights on agricultural land was re-negotiated with zamindars. Most importantly, as India was forcibly opened to the global market, British joint-stock companies and railroads finally penetrated to the agricultural hinterland and connected supply (cheap raw material) with demand (industries in Europe).
So Britain began to leap ahead, buying ridiculously cheap raw materials, processing them in factories, and selling finished goods in India. The profits fueled investment in industrial technology, and productivity increased as agricultural workers moved to industrial jobs. Meanwhile, increasingly unemployed Indian artisans in handicraft industries returned to the agricultural jobs to eke out a living, since the demand for agricultural raw material was so huge. Thus began the de-industrialization of India.
Within a few decades from the 1860s to the 1920s, industries continued to become more productive, as they were only constrained by technology, and so European workers eventually achieved better standards of living. Agriculture, however, cannot indefinitely become more productive, as land is limited. And as a primarily agricultural nation, rural India quickly hit peak productivity and stagnated. And so Indian workers continued to remain in poverty.
ustrial revolution, Europe began to develop very rapidly. Global trade increased in volume, but India’s handicraft industries had lost their workers to the stagnant agricultural pool and it was unable to take advantage of this trend. With an economy that was stuck in a dead-end, it’s not really a surprise that India fell behind Europe — one could say that the cards were literally stacked against it. And so India’s premier position in global trade was lost.
But did globalization really do anything for India?
The fundamental problem with saying “India became poor” is that it applies the term “India” to an extremely large and diverse subcontinent. While the stagnation of agriculture was a massive issue in the hinterland, urban centers industrialized to a considerable extent, with Bombay’s cotton industries selling more in the subcontinent than Lancashire did by the turn of the 20th century.
Furthermore, unified currencies, language, and legal codes proved to have considerable positive externalities for some classes, such as the Parsees and other merchant communities (fun fact: the Tata family, which comes as close to capitalist royalty as any, made its fortune in the global opium trade before shifting to cotton and steel).
Black and white narratives of the British as evil conquerors are tinged with a nationalist lens. For starters, they never lacked for Indian partners, from merchants to princes. India itself was hardly a land of milk and honey for all of its people before the Raj.
A clearer look at the costs and benefits of colonial rule reveals a mass of contradictions, with some regions doing very well, some not changing much, and others being driven into poverty. The subcontinent was and is too diverse to generalize: it might help us better deal with the legacy of the Raj if we were to start seeing it in shades of grey, and calmly assess its shadow over the birth and development of the land called India.
What does this require of Britain today? An apology? Absolutely. Reparations? Perhaps – although there is not enough money in all of Britain to cover the sums that Patnaik identifies. In the meantime, we can start by setting the story straight.
We need to recognise that Britain retained control of India not out of benevolence but for the sake of plunder and that Britain’s industrial rise didn’t sui generis from the steam engine and strong institutions, as our schoolbooks would have it, but depended on violent theft from other lands and other peoples.