How Colonial India

Made Modern Britain

Based on insights of Aditya Mukherjee

Presenter: Sehaz Nagpal | Section 1 | 5803
What does this text indicate?
The text aims to focus on the impact of colonialism on the modernization process of the colonizing countries. It primarily
highlights the imperial connection between Britain and India, while arguing that the economic development in Europe was
closely linked with Europe’s relationship with the rest of the world from about the 15th century.

TABLE OF 1. Introduction

CONTENT This section gives a glimpse of the impact on colonialism on the

world economy.

2. Europe And Asia: Broad Comparative Data

This section includes some macro-economic figures that gives
insights about the imperial relation of Britain and India.

3. British Conquest To India

This section highlights the link between India and Britain in terms of
flow of commodities, labor, and capital, and how it historically
evolved, and with what consequences.

4. British Colonialism And India: The Last Phase

This section is the description of the imperial relation in the last few
years of the colonization and if “decolonization” happened.
Dual Effect of Colonialism on the World Economy
Colonialism influenced both the colonies and the colonizers. It had destructive effects on colonies but was also argued to
contribute to the colonizers' development, especially by enabling capital accumulation in Europe.

Early Positions taken by Karl Marx

Karl Marx discussed colonialism’s “destructive” and “regenerative” roles in his writings. He believed colonialism
1 destroyed pre-colonial societies but opened the path for potential capitalist growth colonies. Marx saw this as a
“historically progressive” force, though this interpretation became controversial over time.
Marx also described the transfer of capital from colonies to colonizers as a “bleeding process,” which facilitated Europe’s

2 transition to industrial capitalism. This drain of resources was seen as vital to European economic development and wasn’t
limited to the early phase of industrialization or primitive accumulation—it continued as a structured appropriation of
surplus from colonies.

Developments on Marx’s Views

Indian intellectuals and nationalists, like Dadabhai Naoroji, R.C. Dutt, and M.G. Ranade, challenged Marx’s initial view, arguing against
colonialism as a path to development. By the 1860s, they advocated that real development required the removal of colonial rule,
marking an early and comprehensive critique of colonial exploitation.

Marx’s ideas on surplus transfer were expanded by dependency theorists and world system analysts, who analyzed colonialism as
an ongoing appropriation system. They argued that even in “free trade,” colonial countries faced unequal exchanges that transferred
wealth to the more industrialized nations.

I. Introduction
Colonialism and European Modernization Debate
The perception that colonialism contributed little to Europe’s modernization is still debated. Some scholars argue Europe’s intrinsic
advantages led to its success, while others, including Mukherjee, counter that colonial wealth was crucial in enabling Europe’s
capitalist rise.
Arguments that Europe was economically ahead before the Industrial Revolution are questioned, as regions like China and India had
significant economic influence until the late 18th century. Europe’s dependence on Indian textiles and American gold and silver
suggests that the Industrial Revolution was partly fueled by resources extracted from the colonies.
Some assert that modern values (like those from the Enlightenment) originated solely in Europe and were later spread globally.
However, Mukherjee challenges this view by referencing figures like Emperor Akbar, who advocated reason and tolerance,
predating similar European values.
Mukherjee highlights that colonialism was driven by surplus appropriation, not moral obligations or incidental intentions. Surplus
extraction varied by era and economic conditions, adapting to changing needs in labor, capital, and knowledge as key factors of
production.

Evolving Forms of Surplus Appropriation

In the early phases, labor was forcibly extracted either in colonies or through slave labor, followed by capital accumulation during
industrialization through mechanisms like the “drain” of goods. In the post-industrial period, surplus transfer continues through “brain
drain,” where skilled workers from formerly colonized nations migrate to developed countries.
India, as a classical colony, experienced all forms of surplus extraction: forced labor, tribute, unequal trade, and modern brain drain.
After independence, India’s efforts to build a skilled workforce led to significant emigration, depleting its domestic talent in scientific
and technical fields.

I. Introduction
 Interpretations
1 Asia Vs West Europe

Macro-Level GDP Comparison Pre-Colonial Dominance: In 1500, Asia (excluding Japan) contributed
over three times more to global GDP than Western Europe.
Colonial Shift: This dominance shifts as colonial interactions intensify,
Angus Maddison’s work highlights a significant shift with Asia’s share dropping and Western Europe’s share rising.
in the global GDP distribution from 1500 to 2001, Sharp Decline by 1913: By this time, Asia’s share was reduced to two-
particularly between Western Europe and Asia. thirds of Western Europe’s, marking the colonial period's economic
impact on Asia.

2 China & India through the timeline

Until the early 19th century, China and India together produced over
double Western Europe’s GDP.
Colonial Impact on GDP Share: India’s decline began in the 18th
century with British colonization, while China’s fall started in the 19th
century. By 1913, their combined GDP was less than half of Western
Europe’s.
Further Decline by Mid20th Century: By 1950, India and China’s share
fell to just one-third of Western Europe’s GDP, coinciding with their
recent independence in 1947 and 1949, respectively.
Post-Colonial Economic Recovery: Following independence and
extensive efforts to undo colonial structures, both nations gradually
regained a larger share in the global economy.

II. Europe and Asia: Broad Comparative Data

 Interpretations
3 India Vs Europe

Macro-Level GDP Comparison India’s Pre-eminence Pre-18th Century: India was the world’s largest
economy throughout the first millennium, commanding around 30% of
global GDP.
Angus Maddison’s work highlights a significant shift Status in the Early 18th Century: India held around 25% of global GDP,
in the global GDP distribution from 1500 to 2001, exceeding Western Europe’s combined GDP and more than eight times
particularly between Western Europe and Asia. that of the UK.
Economic Decline During Colonialism: By 1950, after nearly 200 years
of British rule, India’s share of global GDP plummeted to 4.2%, less than
two-thirds of Britain’s share.

II. Europe and Asia: Broad Comparative Data

Colonial vs. Post-Colonial Economic Growth
Per Capita Income (1820-1913):
During colonial rule, India’s per capita income growth was
minimal, nearly stagnant compared to the substantial growth in
independent nations like the US, Europe, and Japan.

Sharp Decline in Late Colonial Period:

Between 1913 and 1950, India’s per capita income actually
declined at an annual rate of 0.22%.

Post-Independence Economic Surge:

From independence onward, India experienced substantial per
capita income growth:
Sectoral Growth and Structural Transformation • Early Post-Colonial Period (1950s-70s): An annual growth
rate of 1.4%, three times the colonial period’s best phase
Post-Independence Industrialization: India’s rapid post- (1870-1913).
colonial growth was not a continuation of colonial initiatives • Late Post-Colonial Period (1973-2001): Growth surged to
but a result of deliberate structural reforms. 3.01% per year, surpassing Western Europe, the US, and
Multi-Sector Growth: Significant breaks from colonial Japan.
stagnation were seen across agriculture, industry, and • 2003-2007 Boom: India’s per capita income grew at an
capital formation. impressive 7% per year, comparable to Japan’s rapid postwar
Unique Developmental Approach: India’s growth after growth.
independence was marked by a deliberate, multipronged
strategy aimed at industrialization within a democratic
framework, contrasting with colonial exploitative structures.

II. Europe and Asia: Broad Comparative Data

 Early Trade and Shift to Colonial Impact on British
Economic Relations Exploitation Post-1757 Capital Accumulation
Precolonial trade: Britain’s trade Battle of Plassey (1757): Marked Funding Britain’s industrial
with India grew in the early 18th British military dominance and the revolution: India’s tribute was
century, mainly through imports of beginning of direct colonial rule in critical, forming around 9% of
textiles and silk (about three- India. Britain’s GNP from Indian territories
fourths). "Tribute" system: Britain used in 1801, about 30% of British
Indian textiles: Indian textiles Indian tax revenues to pay for domestic savings.
became central, making up 75% of Indian exports; India paid for its Dependency on Indian Tribute:
British imports from India and own exports, creating a form of Throughout the 19th century, Britain
forming 27% of British exports to “drain” or tribute. relied on India's tribute to stabilize
Africa in the Atlantic slave trade. Economic drain: Unpaid exports its balance of payments, enabling it
Bullion financing: Britain lacked became a financial burden on India, to avoid taxing its own working
attractive exports for India, so it benefiting Britain’s economy and class for industrial capital. Indian
used silver from Latin America to supporting its industrialization. tribute made up roughly 40% of
fund its imports. Britain’s balance of payments deficit
in this period.

Stage 1: Merchant Capital Stage 2: Industrial capital Stage 3: Finance Capital

Stages of
Evolving from trade. Surplus Appropriation Financial control to
Colonialism (Drain or Tribute) though “Free-Trade” extract capital

III. British Conquest of India

Supra-Class Exploitation
Britain’s colonial structure shifted economic burdens from its working class to India’s peasantry and laborers.

Opium Trade and Triangular Trade with China

Decline of Indian Textiles: British industrialization reduced demand for Indian textiles,
replacing them with British-made goods and creating markets by reducing India’s own
textile exports.
Rise of Opium: To maintain trade flows, Britain exported opium from India to China,
using the proceeds to fund imports of tea and silk.
Opium Wars and Expansion: As China resisted, Britain enforced trade via the Opium
Wars, deepening its control over Chinese markets.

Multilateral Trade and British Economic Strategy

Shift to Raw Material Exports: Demand for raw materials like cotton, indigo, and pig iron
grew, and India became a multilateral trading hub, exporting to Europe, Japan, and the
U.S., while importing British manufactured goods.
Financing Britain’s Global Deficit: India’s export surplus was crucial in balancing Britain’s
payments deficit and financed 40% of Britain’s shortfall.
India as Capital Supplier: Instead of receiving capital, India’s surplus funded Britain’s
global investments and development.

III. British Conquest of India

British Market Manipulation and India’s Deindustrialization
Britain’s policies forced India to rely on British imports by refusing industrial protections. The Indian
textile industry collapsed, increasing dependence on British goods. By 1887, Britain dominated
over 66% of India’s textile market.

Indentured Labour and Post-Abolition of Slavery

After slavery’s abolition in 1834, Britain transported millions of Indians to plantations across the Caribbean, Africa, and Fiji.
Over two million laborers migrated by 1920, forming diasporic communities globally.

Unequal Exchange and Comparative Advantage

Britain’s policies suppressed India’s industries, ensuring a trade imbalance favoring British economic gains. Britain maintained
industrial superiority by exploiting India’s low-cost labor and resources, effectively trapping India in low productivity.

India’s Role as Britain’s Economic Backbone

India acted as the “Jewel in the Crown” for Britain. India’s economic surplus sustained Britain’s imperial ambitions, making it
vital to retain control. India’s resources financed Britain’s development and empire expansion, leaving India under-
industrialized and impoverished.

III. British Conquest of India

Economic Changes and Decolonization Myth
After WWI, slight industrial growth occurred, especially in consumer goods. Cotton industry revived in India, regaining some of its
domestic market from Britain. Led to some claims of "decolonization," as Britain seemingly yielded some control to Indian industries,
but this was not full decolonization.
Despite industrial gains, exploitation continued, shifting from industrial to financial interests. Britain focused on using India for
unrequited financial benefits, like remittances and "drain" mechanisms, rather than abandoning control.

Shift in British Economic Strategy

Britain, losing its global industrial edge, focused on securing Indian financial resources. After WWI, heavily indebted to the U.S., Britain
prioritized maintaining financial superiority using colonies.
Indian finances were essential for British war costs and military expenditures. Home Charges rose from £2 million (1913-14) to £32
million (1924-25); military costs also surged. During WWII, defense expenses grew by over nine times in just five years.

Conflict of Imperial Interests

Customs revenue became a primary revenue source, as land revenue couldn’t be raised further. Import duties, especially on cotton,
became necessary for generating revenue. Tariffs on foreign cotton goods increased, which inadvertently helped Indian industries.

Increased tariffs protected Indian industries, compromising British industrial interests. British officials resisted reducing cotton tariffs,
acknowledging their necessity for revenue and defense costs.

IV. British Colonialism and India: The Last Phase

British Control over Indian Finances
RBI was established in 1935 but lacked autonomy, serving British interests. Seen by the British as a tool to manage Indian finances, not
as an institution for Indian economic empowerment.
Major portions of Indian revenue were allocated for British expenses, notably defense. The Secretary of State for India maintained
power over currency and financial policies to ensure funds for Britain.
Despite global trade challenges, Britain continued trying to dominate the Indian market, especially in goods like cotton and
machinery. Trade agreements in the 1930s aimed to retain India as a consumer base for British goods.

British Debt and Repayment Issues

Great Depression Forced Loans (Sterling Balances) Post-War British Debt
India exported gold massively to Britain took substantial forced loans Britain considered defaulting on loans
balance trade and meet British financial from India, leaving IOUs instead of after WWII, further exemplifying its
obligations. Gold exports became actual payment. This contributed to exploitation of India. The prolonged
crucial in maintaining Britain’s sterling severe inflation and scarcity in India, financial exploitation deeply impacted
stability and addressing Britain’s own coinciding with the devastating Bengal India’s economy and living conditions.
economic crises. famine.

Legacy of British Exploitation

India contributed to Britain's global dominance, yet suffered severe economic, social, and cultural consequences. Rabindranath
Tagore highlighted the destructive impact of British rule, foreseeing the misery they’d leave behind.

IV. British Colonialism and India: The Last Phase