The economic de-industrialisation of India refers to a period of studied reduction in industrial based activities within the Indian economy from 1757 to 1947.
Parts of the Indian economy were controlled under the rule of the British East India Company from 1757 to 1858. This period involved protectionist policies, the restricting, or tariffing, of the sale of British and other foreign manufactured goods within Company territory, and Indian goods and services within Britain. A 10% tariff was imposed on East Indian Company textile imports into England from 1685, and it was doubled to 20% in 1690, with the 1698 Calico Acts restricting the importation of printed Indian textiles, and Scotland from the Duties on East India Goods Act 1707, while the Company had a monopoly on all English, and later British, trade, in either direction, from its 1661 charter revision, to the Charter Act 1813. From 1858 until 1947, much of the Indian economy was controlled directly under British imperial rule, also known as the British Raj.
Amiya Bagchi claimed that the de-industrialisation processes observed in India were a product of colonial rule intentionally aimed at benefiting the British economy. The Industrial Revolution in Europe was dependent on a significant rebalancing of the artisan and manufacturing activities in several European colonies in Asia including India.
Indian economy between 1600 and 1800 Mughal Empire
The economy of the Mughal Empire is well known for building the Mughal Road system, establishing the rupee as a standardised currency, and the unification of the region. The Empire had one of the largest economies in the world, with an estimated quarter of humanity and approximately one quarter of the economic output, including manufacturing. Mughal India is considered to be one of the richest periods among early modern Islamic cultures.
The production of Mughal India was around 25% of the global industry output in the early phase of 18th century. The wealthiest province of Bengal Subah which generated 50% of the GDP and 12% world GDP was prominent in textile manufacturing; especially the muslin trade. The major exports in the manufacturing industry included steel, shipbuilding and textiles. The major products exported to Europe included indigo, cotton textiles, spices, silks and peppers.
The Mughal Empire was a global leader in the production of luxury products in the form of handicrafts. These luxury goods consisted of cotton, silk, and ivory which had gained a significant market in Europe.
A proportion of these goods were transferred to the European markets, at substantial markups, and were significant in bringing gold, silver and other valuable exchange items into Asia.
The growth of Indian cotton textile imports into Europe created significant competition with local manufacturers, and resulted in the European manufacturers lobbying for import restrictions, and tariffs, on Indian textiles, for example the, 1698, Calico Acts.
Maratha Empire The decline of the Mughal Empire led to problems of aggregate supply for Indian manufactured goods. The fragmentation of the Empire resulting in power vacuums that resulted in wars, raiding, looting, tax farming, increased transportation costs, and as a result grain prices, and nominal wages, increasing manufactured goods prices.
A number of the succeeding entities, like the Maratha Empire, would establish new industrial bases across the region, to replicate the Arab and European technologies exhibited by their merchant companies. The Maratha's creating a shipbuilding industry, with Arab and Portuguese assistance, in order to create their own fleet of hybrid ships, like the Grab, and the armaments for a Maratha Navy. As were factories established to hilt Firangi swords, for armies, from imported stock European blades. These industrial centers thrived until their sponsors were defeated, by the East India Company, over a series of wars.
The GDP per capita of India, as a percent of the British level, declined during the seventeenth and eighteenth century period from over 60% of the British level to 15% by 1871. The period from 1600 to 1871 saw an annual population growth rate of 0.22%. In comparison to other nations, industry and commerce grew rapidly during the same phase, driven by exports to Europe.
This led to the steady reduction in GDP per capita during this period before stabilizing a bit in the 19th century.
The period from 1780 to 1860 saw a dynamic shift in India's economy from a world leading processed goods exporter to the extraction and export of raw materials to Britain and buyer of manufactured goods from Britain. The leading export of fine cotton silk was shifted to colonially extracted raw materials including opium, indigo and raw cotton.
Company rule
The Company Rule in India refers to areas in the Indian subcontinent which were under the rule of British East Indian Company. The East Indian Company began its rule over the Indian subcontinent following the Battle of Plassey, which ultimately led to the vanquishing of the Bengal Subah and the founding of the Bengal Presidency in 1765, one of the largest subdivisions of British India. After the British East India Company obtained both control of both the Mughal opium monopoly and the revenue collection rights, in Bengal, they temporarily reduced the volume of gold and silver annually imported, from the Atlantic triangular trade, and historically used by the Company in payment for exports from India; Bengali opium being in part substituted for the imported silver used by the Companies merchants in the China trade, reducing the annual capital inflows into the region, and causing a local currency shortage, while the Company redirected populations to grow and manufacturer opium baskets, for the China trade.
Between 1671 and 1813 the East India Company held a monopoly on English, and later British trade with the Indies, the Company being able to control what goods were traded into its territories, as well as exported. In addition, between 1685 and 1774, the English and later British governments imposed tariffs, or prohibited the import of Indian textiles into Britain, through the Calico Acts. The Calico acts being campaigned for, and later demanded repealed, by British textile workers; initially to protect themselves from cheap Bengali imports, and latter repealed, once they had improved their productivity sufficiently, through the invention and use of mechanised combing, spinning, and weaving machines, in the new industrial factory system, to reduce costs substantially below the previously imported Indian handicrafts. Further helped by the import of cheaper, and in part higher quality, long-staple, American cotton bails. Access to the Companies territories, for the new British manufactured textiles, being demanded and seeded in 1813. From the 1813 abolition of the East India Companies monopoly on British trade in the Indies, the Indian handicraft market, that had previously been protected from British, factory manufactured, imports, was exposed to imported manufactured goods, while local Indian producers were heavily taxed. In addition the East India company undertook a program of works, including the construction of new ports, the metalling of roads, including the ancient Grand Trunk Road, the digging of canals, and the establishment of the first railways, to enable, and reduce the cost, and time necessary, to both import and export goods, through the region; in addition to facilitating the movement of the Companies agents, and its Sepoy armies, to maintain control of the Companies possessions. Programmes a number of regional kingdoms replicated, connecting their nations to the EIC network. The new transport network exposed once isolated, largely self sufficient, handicraft dependent communities, to regional, and global competition, converging and reducing goods prices across the region, impacting uncompetitive producers.
Britain's preferential trade policies, the redirection of global supply chains led to significant productivity gains for the country, with the change from local cottage production to factory goods. This resulted in Britain initially gaining control over first the Indian export market and then the domestic market as well. India's post-1810 deindustrialisation followed the pattern seen worldwide as a result of European colonial occupation.
Rule under the British Raj (1858-1947)
The rule of the Indian economy under the British Raj refers to the period of the British's direct imperial rule over India from 1858 to 1947, which arose due to the Indian Rebellion of 1857. This marked the formal conquest of India by the British.
Several economic policies implemented by the British Raj also caused a severe decrease in Indian handicraft (and handiloom) sectors of the economy, particularly resulting in a large decrease in demand for employees, goods and services. Although the Raj did not provide capital to the British economy, due to Britain's declining position in the steel making industry in comparison to the US and Germany, the Raj had steel mills set up in India. The Tata Iron and Steel Company (TISCO) first operated in Bihar in 1908 and later became the largest and leading steel producer in India in 1945.
Large amounts of investments by the private and public British investors contributed to a revamped railway system in India, mainly being used for economic growth and military use. This led to the creation of the fourth largest railway system in the world. At first however, the initial use of the railway system was by private British companies. In 1837, the first train used on the railway system for freight transport ran from Red Hills to Chintadripet bridge in Madras. In 1853, the railway began to be used for passenger travel services from Bombay to Thane, eventually expanding throughout most of the Indian subcontinent. During the First World War, the trains were used to transport troops and grain to other countries such as Britain and South Africa, although by the end of the war, the railway system was largely deteriorated.
During the Great Depression, the Indian economy was not significantly impacted and the government was mainly focused on the shipping of gold to Britain. The most significant economic impact on the Indian economy was deflation, which directly impacted the debt of villagers, and overseas trading of jute in Bengal, a key trading element through the 1920s which had significantly decline during the early 1930s. Furthermore, declining prices of jute and other food crops severely impacted large scale farmers in India. In contrast, sugar became a largely traded crop and a successful industry in the early 1930s.
The colonial infrastructure created by the British government, including legal systems, railways and telegraphs were mobilized towards resource exploitation, leaving industrial growth static and agriculture unable to keep up with natural population growth. The industry output from India relatively declined to 2% of the world's output in 1900. Britain then replaced India as the largest textile manufacturer in the world.
Cause of de-industrialisation in India