Phases of Economic Exploitation of India by British

Commercial Capitalism (1600-1800)

 The period of Commercial Capitalism, spanning from 1600 to 1800, marked an important
phase of economic exploitation by the British in India. During this time, the British East
India Company consolidated its presence in India and engaged in profitable trade
activities.
 The primary objective of the East India Company was to purchase goods such as spices,
cotton, and silk from India and sell them at high prices in the British market. This created
a favorable trade imbalance for the British, allowing them to amass significant profits.
The Company had control over the entire production process, although production was
still conducted on a smaller scale compared to later industrialization.
 As the demand for profits grew, the merchant entrepreneurs hired more workers, leading
to an increase in labor demand. Many individuals shifted from agriculture to industry in
search of employment opportunities. This transition from subsistence-oriented production
to profit-driven commercialization had significant implications for the Indian economy
and society.
 The export of Indian goods increased during this period, stimulating production and
trade. Towns began to develop as centers of commerce and industry. The
commercialization of agriculture and industries brought about notable changes in the
economic and social fabric of Indian society.
 However, it is important to note that during this phase, economic exploitation was
primarily focused on trade and the extraction of resources, rather than large-scale
industrialization or structural changes in the Indian economy. The British East India
Company, through its control over trade and resources, established a foundation for
future phases of exploitation and dominance in India’s economy.

Industrial Capitalism (1800-1860)

 During the phase of Industrial Capitalism from 1800 to 1860, the British further exploited
India’s economy through the Industrial Revolution and the colonial policies of free trade.
This period was characterized by significant advancements in industrial production and
the establishment of a complex division of labor.
 The Industrial Revolution, which had begun in Britain, brought about radical changes in
manufacturing processes and technology. The use of machines and the mechanization of
production became prominent features of this era. The British took advantage of these
developments and sought to exploit India’s resources and markets for their industrial
goods.
 Under the policy of free trade, initiated by the Charter Act of 1813, the British focused on
expanding industries and intensively commercializing agriculture in India. They aimed to
produce raw materials for their industries and convert their colonies, particularly India,
into captive markets for their machine-made finished products. This approach disrupted
the existing economic structure and had significant consequences for the Indian artisans
and weavers.
  The intensified competition from British industries led to the decline of indigenous
artisans and weavers, who lost both the British and Indian markets. The introduction of
machine-made goods from Britain, which could be produced at a larger scale and lower
cost, posed a threat to the traditional handloom and cottage industries of India. The
British dominance in the market undermined the livelihoods of Indian artisans and
weavers, resulting in their marginalization and loss of economic opportunities.
 The industrial capitalism phase further entrenched the economic exploitation of India by
the British, as they utilized India’s resources and markets to fuel their industrial growth
while undermining indigenous industries. This period laid the foundation for the
subsequent phases of economic exploitation and dominance by the British in India.

Financial Capitalism (1860-1947)

 During the phase of Financial Capitalism from 1860 to 1947, the British further deepened
their economic exploitation of India by focusing on financial control and investment in
various sectors. This period was characterized by the dominance of financial
intermediation, foreign investments, and international competition for colonies.
 The British Empire expanded its investments in India during this time, particularly in
infrastructure development. One notable example is the construction of railways, which
facilitated the transportation of goods and resources for the British colonial
administration. Other sectors such as banking, postal services, and telegraph
communication also witnessed significant development under British control.
 To maintain control over Indian capital and resources, the British implemented the
management agency system. This system allowed them to exert influence and exercise
control over Indian financial institutions, ensuring that profits and benefits flowed back to
Britain. Through this system, the British effectively maintained their economic
dominance and exploited Indian resources for the benefit of their economy.
 Foreign investments played a crucial role during this phase, as the British sought to
extract wealth and resources from India for their financial gain. They encouraged and
facilitated investments from British companies and individuals, further consolidating
their economic control over India.
 The financial capitalism phase also coincided with increased international competition for
colonies among European powers. Britain, along with other colonial powers, competed to
establish economic dominance and secure resources from their colonies. India, with its
vast resources and potential market, became a significant target for British financial
investments and economic exploitation.
 The economic policies and practices of financial capitalism reinforced the economic
subjugation of India by the British. The extraction of wealth, control over capital, and
dominance in key sectors of the economy allowed the British to maintain their
exploitative grip on India until independence in 1947.
 Overall, the phase of financial capitalism solidified the economic exploitation of India by
the British, as they leveraged financial control, foreign investments, and international
competition to further their interests at the expense of the Indian economy and its people.

Various Economic Policies of the British

Land Revenue Policies

 Under British rule, land revenue policies were a significant means of extracting resources
and funds from the Indian population. The burden of economic development and
financing administrative and military expenses was largely placed on the peasant class.
 The British implemented various land revenue systems throughout their rule, with the
primary objective of maximizing revenue extraction from agricultural lands. One of the
most significant land revenue policies was the Permanent Settlement introduced in
Bengal in 1793. This policy fixed the land revenue demand at a perpetual rate, which was
to be paid by the zamindars (landlords) who held control over large landholdings. The
zamindars, in turn, collected revenue from the actual cultivators, the peasants.
 The Permanent Settlement system created a fixed revenue demand regardless of changes
in agricultural productivity or fluctuations in crop yields. This often resulted in increased
financial burdens on the peasants, as they were subjected to high revenue demands and
were vulnerable to exploitation by the zamindars. Many peasants faced economic
hardships and were unable to meet the revenue demands, leading to indebtedness and loss
of land.
 In addition to the Permanent Settlement, other revenue systems such as the Ryotwari and
Mahalwari systems were implemented in different parts of India. These systems also
aimed at maximizing revenue collection but involved direct interaction between the
British administrators and the peasants. In these systems, the British officials assessed the
land’s potential and imposed revenue demands directly on individual cultivators.
 Regardless of the specific revenue system, the taxation policies imposed a heavy burden
on the peasant class. The revenue collected from the peasants was used to finance the
administrative machinery of the British colonial government, support the British military
presence in India, and generate profits for the East India Company.
 The revenue demands were often high, leaving the peasants with little surplus for their
own sustenance and economic development. Additionally, the introduction of cash crops
and commercial agriculture, encouraged by the British for export purposes, led to a shift
in agricultural practices and affected the self-sufficiency of peasant communities.
 Overall, the land revenue policies of the British placed a significant economic burden on
the peasants, as they were subjected to high revenue demands and exploitative practices
by intermediaries. The revenue collection served the interests of the British colonial
administration and contributed to the economic exploitation of India under British rule.

Permanent Settlement

 The Permanent Settlement, introduced by Lord Cornwallis in 1793 in Bengal and Bihar,
aimed to establish a fixed and permanent revenue system. Under this system, the
traditional zamindars and revenue collectors were transformed into landlords with
absolute ownership rights over the land.
 The key objective of the Permanent Settlement was to create a stable revenue source for
the British East India Company by fixing the land revenue demand at a perpetual rate.
The zamindars, who were granted the status of landlords, were responsible for collecting
and paying the fixed revenue amount to the British administration. The revenue demand
 was typically set at 10/11th of the total collection, leaving the zamindars with one-
eleventh as their share.
 As a result of this settlement, the inhabitants of the land, who were previously cultivators
with customary rights, became mere tenants. Their status changed from independent
landholders to tenants who had to pay rent to the newly appointed landlords. The
zamindars held significant power over the tenants, as they had absolute ownership rights
and the authority to collect rent from them.
 The intention behind the Permanent Settlement was to establish a stable and predictable
revenue system that would encourage investment in land improvement and increase
agricultural productivity. However, the system had several negative consequences. The
fixed revenue demand often proved to be exorbitant and inflexible, leaving the zamindars
with little incentive to invest in land improvement or provide support to the peasants.
 Moreover, the Permanent Settlement led to the concentration of landownership in the
hands of a few privileged individuals, the zamindars, while the peasants became
economically vulnerable. The peasants, now reduced to the status of tenants, faced high
rents and exploitative practices from the zamindars. They often struggled to meet the
revenue demands and were at risk of losing their land and livelihoods.
 Overall, the Permanent Settlement had significant implications for landownership and the
socio-economic structure of Bengal and Bihar. It concentrated power and wealth in the
hands of the zamindars, transformed peasants into tenants, and imposed a heavy burden
of taxation on the agrarian population. The system contributed to socio-economic
inequalities and exploitation within the rural communities affected by the settlement.

Ryotwari System

 The Ryotwari system was a revenue settlement system introduced in parts of South India,
particularly in the Madras province, during British colonial rule. It was implemented by
Thomas Munroe in 1820 as an alternative to the Permanent Settlement.
 Under the Ryotwari system, the traditional zamindars were eliminated, and the state
directly dealt with the individual cultivators or peasants, known as ryots. The ryots
became the proprietors of the land they cultivated and were responsible for paying the
land revenue directly to the state.
 Unlike the Permanent Settlement, where the revenue demand was fixed and based on a
share of the total collection, the Ryotwari system implemented a fluctuating revenue
assessment. The land revenue was assessed individually for each ryot based on the nature
of the land, its fertility, and the prevailing market conditions. This assessment was
conducted periodically, typically once every 20 years.
 One of the key features of the Ryotwari system was that the individual ryots had to bear
the burden of the entire tax liability. Regardless of the condition of their agricultural
yield, whether it was partially or fully destroyed by natural calamities such as floods or
droughts, the ryots were still required to pay the fixed tax amount.
 This aspect of the Ryotwari system placed a heavy burden on the peasants, as they had to
bear the risks and uncertainties associated with agriculture without any relief in their tax
obligations. It often led to distress among the farming communities, especially during
times of poor harvest or natural disasters.
  Additionally, the absence of intermediaries between the state and the ryots meant that the
burden of administration and tax collection fell directly on the government officials. This
sometimes resulted in excessive exploitation and harassment of the peasants by corrupt or
insensitive officials.
 While the Ryotwari system aimed to create a direct relationship between the state and the
cultivators, it had its shortcomings and often led to agrarian distress. The fluctuating tax
assessments and the inability of the ryots to seek relief during difficult times made it a
challenging system for the agricultural communities.
 Overall, the Ryotwari system had a significant impact on the agrarian structure in South
India, transforming the relationship between the state and the peasants and influencing
the socio-economic conditions of the region during the colonial period.

Mahalwari Settlement

 The Mahalwari Settlement was a land revenue system introduced in the North-Western
provinces of British India during the colonial period. It was implemented by Holt
Mackenzie in 1822 and later reformed by William Bentinck in 1833.
 Under the Mahalwari system, the land was divided into units called Mahals. Each Mahal
consisted of one or more villages, and for tax assessment purposes, the entire village or
Mahal was treated as a single unit. The responsibility for tax collection was delegated to
the village headman or a village committee.
 One of the key features of the Mahalwari system was the frequent revision of the tax rates
by the state. Unlike the Permanent Settlement or the Ryotwari system, where the revenue
demand was fixed or periodically assessed, the Mahalwari system allowed the
government to revise the tax rates more frequently. This flexibility in tax assessment
aimed to accommodate changes in agricultural productivity, market conditions, and other
factors.
 The Mahalwari system incorporated elements from both the Zamindari and Ryotwari
systems. Like the zamindari system, it recognized the existence of intermediaries such as
village headmen who played a role in tax collection and administration. However, unlike
the zamindari system, the land remained under the ownership of the individual
cultivators, similar to the ryotwari system.
 The Mahalwari system aimed to establish a direct relationship between the state and the
cultivators while maintaining some level of local administration. It aimed to strike a
balance between centralized control and local autonomy by delegating tax collection to
the village level.
 While the Mahalwari system attempted to address some of the shortcomings of previous
land revenue systems, such as excessive exploitation by intermediaries, it still had its
limitations. The frequent revision of tax rates could lead to uncertainty for the cultivators,
and the burden of taxation often fell heavily on the agricultural communities.
 Overall, the Mahalwari Settlement had an impact on land administration and revenue
collection in the North-Western provinces during the colonial period. It aimed to strike a
balance between central control and local administration while recognizing the individual
rights of cultivators.

Other systems
Taluqdari system:

 The Taluqdari system was a land tenure system that emerged in the provinces of Oudh
(Awadh) and Bengal during the British colonial period. It was a combination of
Zamindari management strategies and fiscal policies aimed at raising funds for specific
purposes.
 After the implementation of the Permanent Settlement, which transformed zamindars into
hereditary landowners with fixed revenue obligations, many zamindars established
dependent taluqs within their estates. These taluqs were known as Pattani taluq, noabad
taluq, and osat taluq.
 Under the Taluqdari system, the zamindars granted portions of their zamindari lands to
loyal supporters or influential individuals, known as taluqdars. These taluqdars held a
higher status within the local hierarchy and were responsible for managing the assigned
taluqs.
 The purpose of establishing taluqs was twofold. Firstly, it served as a mechanism for the
zamindars to delegate the management of specific areas within their estates to trusted
individuals, thereby reducing their administrative burden. Secondly, the revenue collected
from these taluqs was utilized for specific purposes such as maintaining a standing army
or funding infrastructure projects.
 The taluqdars enjoyed certain privileges and rights within their assigned taluqs, including
the right to collect revenue from the tenants and administer local affairs. However, they
were also accountable to the zamindars and had to fulfil their revenue obligations to the
higher authorities.
 While the Taluqdari system provided a mechanism for the decentralization of authority
and local administration, it also resulted in the concentration of power and wealth in the
hands of a few taluqdars. This further reinforced the hierarchical structure of the rural
society and created a divide between the powerful taluqdars and the agricultural tenants.
 The Taluqdari system was specific to the regions of Oudh and Bengal and had its own
dynamics and variations. It represented a unique form of land tenure and revenue
management during the British colonial era, shaped by the needs and circumstances of
the local regions.

System of Malguzari

 The Malguzari system was a land tenure system that existed in the former Central
Provinces of British India. It had its roots in the revenue farming practices of the
Marathas, where individuals known as Malguzars were appointed as revenue farmers.
 Under the Malguzari system, the Malguzars were granted proprietary rights over the land
and were responsible for the collection of revenue from the peasants. They acted as
intermediaries between the British administration and the agricultural communities.
 During British rule, the Malguzars were held accountable for revenue collection and were
required to pay a fixed amount to the colonial authorities. They had the right to retain any
surplus revenue collected after meeting their revenue obligations.
 The Malguzari system aimed to streamline revenue collection and establish a clear
system of accountability. It provided a mechanism for the British administration to
 maintain control over revenue generation while utilizing the existing revenue farming
structure.
 However, the Malguzari system also had its drawbacks. The Malguzars, being revenue
farmers, often sought to maximize their profits, leading to the exploitation of the
peasants. The system created a burden of high revenue demands on the agricultural
communities, which impacted their economic well-being.
 Over time, the Malguzari system underwent reforms and changes as the British
administration sought to address the issues and improve revenue administration.
Eventually, with the implementation of land revenue reforms in the late 19th and early
20th centuries, the Malguzari system was gradually replaced by more standardized land
tenure and revenue systems.
 The Malguzari system, therefore, represents a specific form of land tenure and revenue
administration that existed in the former Central Provinces of British India, where
revenue farmers known as Malguzars played a key role in revenue collection and
management.

Evolution of the Indian Economy: A Journey from Agrarian

Roots to Industrial Growth (1947-1991)
The period between 1947 and 1991 represents a transformative phase in the history of the
Indian economy. During this era, India witnessed remarkable shifts in its economic landscape,
moving from a primarily agrarian economy to one with a developing industrial sector.

 Central to this transformation was the adoption of a planned economic model, known
as the Five Year Plan, aimed at achieving balanced growth and reducing poverty.
 The chapter explores the key economic policies, such as import substitution and public
sector expansion, and their impact on various sectors of the economy along with
challenges that shaped the development of the Indian economy during these decades.

India’s Post-Independence Quest for a Balanced

Socioeconomic System
 Post-Independence Economic System Decision: After independence, the then national
leaders had to decide upon an economic system which would promote the welfare of all
rather than a few.
 Pragmatic Approach: Socialism like in the Soviet Union appealed to Jawaharlal Nehru
(the first Prime minister of India) the most.
o But Nehru realised outright socialism in which there is no private property is not
possible in a democracy like India.
 A Balanced Approach to Socialism: So, the national leaders looked to avoid the
extreme versions of capitalism and socialism.
 o They chose to be a socialist society with a strong public sector along with
private property and democracy.

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What is a Plan?

 Plan contains how resources of a nation should be utilised.

 It contains general as well as specific objectives to be achieved in a specific period of
time (In India, 5 years)
 It also contains a long term plan called ‘perspective plan’ – comprise of what is to
achieved over next 20 years
 Different goals were being emphasised in different plans in India.
 India’s Five Year plans did not specify the quantity of goods and services. Instead,
specified the sectors which government is focussing (power generation, irrigation etc)

 The Framework of Indian Economy Policy:

o The government would plan the economy with the private sector also being a part
of it.
o This idea was reflected in ‘Industrial Policy Resolution’ of 1948 and the Directive
Principles of the Indian Constitution.
 In 1950, the Planning Commission was set up with the Prime Minister as its
Chairperson marking the beginning of five year plans for the comprehensive
development of the Indian economy.

Types of Economic Systems

Capitalist Economy (Market economy) in indian context

 In the Indian economy, market forces of supply and demand play a crucial role.
 Meaning: Only those consumer goods that are in demand are produced which can be
sold profitably in domestic or foreign markets.
 Example: If cars are in demand, cars will be produced and if bicycles are in demand,
bicycles will be produced.
 Factors Influencing Production Methods: How they are produced –
o If labour is cheap, we use labour intensive methods.
o If capital is cheap, we use capital-intensive methods.
 Distribution: It based on purchasing power (ability to buy goods and services) of
people and not based on what people need.
o But even if low-cost housing for the poor is needed, it will not be considered as
a demand in capitalist economies because the poor don’t have enough
purchasing power.
 Nehru’s Concerns: Such an economic system did not appeal to Nehru as he knew that
 it would affect the quality of life of the majority of Indians.

Socialist Society

 Meaning: In this system Government decides what goods to produce according to the
needs of the people
 How they are produced: The government decides the way of production
 Distribution: The government decides how they should be distributed
o It is assumed that the government knows the needs of people – so individual
needs are not taken into consideration, unlike capitalist economies.
 Example: A socialist nation provides free healthcare to all its citizens.
o China and Cuba are some of the economies following socialist principles.

Mixed Economy in India

 The Indian economy represents a mixed economy where, both the government and
market together decide the production and distribution of goods and services
 Complementary Approaches to Goods and Services Provision: The market will
provide whatever goods and services they can produce well, and the government
focuses on providing essential welfare activities which the market fails to produce.
 Most economies are mixed economies.

The Comprehensive Goals of India’s Five Year Plans

The general goals of Five Year Plans in the Indian economy were multifaceted: growth,
modernisation, self-reliance and equity.

 Due to limited resources, priority was given to different goals in each plan.
 However, planners tried to ensure that the policies of the plans did not contradict the
importance of these 4 goals.

Mahalanobis: the Architect of Indian Planning

 Prasanta Chandra Mahalanobis, a renowned statistician laid down the basic ideas
regarding goals of Indian planning in the Second Five Year Plan
 Mahalanobis, born in 1893 in Calcutta graduated from the Presidency College in
Calcutta and Cambridge University in England.
 In 1945 he was made a Fellow (member) of Britain’s Royal Society.
 He established the Indian Statistical Institute (Calcutta) and started a journal,
Sankhya, a respected forum for statisticians to discuss their ideas.
 He was open to his critics and invited distinguished economists from India as well as
abroad to advise him on India’s economic development.
Let’s study these goals in detail.
1. Understanding Growth in the Indian Economy


o Meaning: It denotes the increase in a country’s capacity to produce goods and
services.

 This may be reflected in a larger stock of productive capital or
an increase in the efficiency of productive capital and services.
o Gross Domestic Product (GDP):In the context of the Indian economy, the
significance of GDP as an economic indicator is paramount, as it perfectly mirrors
the nation’s economic growth
o Definition: GDP is the market value of all the final goods and services produced
in the country during a year.

 Example: If a cake is bigger, more people can enjoy it.Similarly, a
larger GDP in the Indian economy translates to an improved
quality of life for more citizens.
o Determinants of GDP:

 GDP depends on contributions from agriculture, industry and
the service sector.
 The contributions of each of these sectors make up the structural
composition of the economy.
o Example: In some countries, agriculture contributes more to GDP, while in
others, the service sector contributes more to GDP.

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2. Dimensions of Modernization in Economic and Social Frontiers


o Modernisation within the context of the Indian economy refers to the
adoption of new technology which helps in increasing the production of goods
and services.
o Example: A factory can increase output by using a new type of machine.
o Changing Outlook: Modernisation also refers to changes in outlook like the
recognition of equal rights for women.
 Thus a modern society makes use of women in the workplaces like banks,
schools, factories etc. which helps in making the society prosperous.

3. The Imperative of Self-Reliance and Equitable Growth in Economic Development


 o Meaning: Self-reliance refers to the usage of a nation’s own resources to
increase production rather than using imported materials.
o The first seven five year plans gave importance to self-reliance.
o This helped us to reduce dependence on foreign countries, especially for food.

4. Pursuing Equity in the Context of Indian Economic Development


o Equity aims to reduce the inequality in the distribution of wealth.
o All three of the above, that is Growth, Modernisation and self-reliance alone
cannot improve the quality of life of all people.
o This means the rich will have all the benefits of the above and a poor section lives
in poverty.
o In the context of the Indian economy, equity becomes a linchpin in addressing
the basic need of every Indian to meet their basic needs of food, education,
housing and healthcare.

Let us see how the First seven Five Year Plans (1950-1990) attempted to fulfill the above 4
goals and the extent to which they succeeded in doing so, with reference to agriculture,
industry and trade.

The Service Sector

 Usually, with development, share of agriculture declines, and share of industry increases
which denotes structural change. Meaning at higher levels of economic development,
the service sector contributes more.
 In India, Agriculture share in GDP in 1947 was more than 50% (like a poor country) but
in 1990, the share of services in GDP was 40.59, more than agriculture or industry like
seen in developed countries.