COLONIALISM AND ECONOMIC EXPLOITATION: A

STUDY OF BRITISH INDIA

UNDER GRADUATE PROJECT
ON HISTORY III
Submitted by

ARCHITHA.M
Reg. No: BA0220010

Submitted to

TAMIL NADU NATIONAL LAW UNIVERSITY

(A University established by Tamil Nadu Act no.9 of 2012)
Tiruchirapalli, Tamil Nadu – 620027
India

NOVEMBER 2024

1
 DECLARATION

I, Architha. M (BAO220010), thereby declare that the project titled “Colonialism and
Economic Exploitation: A Study of British India” submitted to Tamil Nadu National Law
University, Trichy, in partial fulfilment of the requirement of the award of a degree in
undergraduate in law is a record of original work done by us under the guidance of Mr. Kumar,
Assistant Professor of History, TNNLU, and has not been submitted to any other publication.

Place: Trichy
Date: November 2024

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 TABLE OF CONTENTS

CHAPTER 1: INTRODUCTION .............................................................................................. 3

CHAPTER 2: PRE-COLONIAL AND COLONIAL INDIAN ECONOMY ............................ 7
CHAPTER 3: IMPACT OF COLONIAL POLICIES ON THE INDIAN ECONOMY ............ 9
CHAPTER 4: CONCLUSION ................................................................................................ 12
BIBLIOGRAPHY .................................................................................................................... 13

CHAPTER 1: INTRODUCTION

Among all European empires that established colonies in non-European regions, the British
empire had made a significant impact in the world history.

India was used as laboratory by the British, to experiment new policies and to implement the
successful ones in England. Two opposing theories of economic development arose by the
British and the Indian subjects. According to the British, India was experiencing rapid
economic development due to colonial rule and according to Indians, colonial rule was the
cause for economic underdevelopment. Colonial rule was the reason for development of
underdevelopment in India. They had argued, that economic stagnation in India was not a
consequence of the pre-colonial changes but rather due to colonialism1.

The contributions of Dadabhai Naoroji (1825 – 1917) and Romesh Dutt (1848 – 1909) played
an important role in the development of the theoretical understanding of Indian economy during
the colonial rule. According to Dutt, the free trade policy under the colonial rule greatly affected
the peasants and artisans. Large scale famines were a result of the colonial taxation system.
The heightened export of raw materials, the establishment of irrigation canals and railways did
not benefit the Indians but rather pulled them towards poverty.

Due to more exportation of agricultural produce, the natives had no resource left for survival
during famines and the free trade reduced the value of indigenous handicrafts which led to the
loss of livelihood of artisans. The artisans who had lost their employment started to indulge in
agriculture. Naoroji had proposed the drain of wealth theory which established that India paid

1
Bipan Chandra. ‘Colonial India: British versus Indian Views of Development.’ Review (Fernand Braudel
Center), vol. 14, no. 1, 1991, pp. 81–167.

3
a higher price for the services imported from Britain which was referred to as the ‘drain’. More
income from India was drained to Britain, these ideas were used as a weapon by the people
during the inter-war period2.

India was the largest economy, which contributed to around thirty percent of the total world
GDP. Even until the beginning of the eighteenth century, India contributed to around 25 percent
of the world GDP3.

The decline started with the colonisation of the Indian economy wherein the contribution of
India reduced to 4.2 percent which was less than two-thirds of Britain. India had to go through
decades of reparation to remove the draining effect of the colonial legacy and improve its
economical position in the world. During the colonial period, the growth of per capita income
in India, was either zero or abysmally low between the years 1820 and 1913 compared to other
independent countries. Between the years 1915 and 1950, during the last years of colonial rule
and when immediately after the years of colonial rule, per capita income progressively declined
at a rate of -0.22 percent4.

The per capita income of India slowly grew at a rate of 1.4 percent after independence during
the first two decades. Through this indicator one can understand the contrast between the
colonial and post-colonial period. The colonisation of India by the British is very significant to
both India and Britain. The contribution of India to the British economy created a significant
impact in both Britain and India. The former’s contribution resulted in the emergence of the
latter as a dominant power in the international arena. India’s resources aided Britain through
the tough times during decline in the industrial realm. Due to this India was drained of her
resources at an annual rate of 5 to 10 percent of her GDP5.

The effect in Britain was positive, wherein the living conditions of the people of Britain raised
to a new level in contrast with the situation in India where people were grappling for survival.
And several years of colonisation and oppression had negatively impacted the people culturally,
socially, morally and psychologically6.

2
Tirthankar Roy. ‘The Economic Legacies of Colonial Rule in India.’ Economic and Political Weekly, vol. 50, no.
15, 2015, pp. 51-59.
3
Aditya Mukherjee. ‘Empire: How Colonial India Made Modern Britain.’ Economic and Political Weekly, vol.
45, no. 50, 2010, pp. 75.
4
Aditya Mukherjee. ‘Empire: How Colonial India Made Modern Britain.’ Economic and Political Weekly, vol.
45, no. 50, 2010, pp. 75.
5
Ibid.
6
Ibid.

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REVIEW OF LITERATURE:

“Empire: How Colonial India Made Modern Britain.” by Aditya Mukherjee

The article written by the author who currently is a professor of contemporary Indian history
in Jawaharlal Nehru University, discusses on the connection between the colonising powers
and their colonies focussing especially on the relationship between Britain and India. The
author argues that colonisation of India allowed Britain to emerge as a hegemonic power while
being pushed to a very downtrodden situation. The Indian resources were drained to improve
the living conditions of the people in Britain. It focusses on the view that colonialism
engineered the modernisation process in colonising powers.

“The Return of the Colonial in Indian Economic History: The Last Phase of Colonialism
in India.” by Aditya Mukherjee

The article mainly discusses on some of the thinkings in colonialism and its economic impact
in both the colonies and the colonisers since the mid-nineteenth century. The author argues the
colonial perspective of historians interfered with the interpretation of effect of colonialism in
the last phase. The ideas of Karl Marx published through journals in New York Daily Tribune
on the impact of colonialism are criticised in detail.

“Economic History and Modern India: Redefining the Link.” By Tirthankar Roy

The article written by Tirthankar Roy who is an Indian historian, puts forth the argument in
order to reconstruct the link between economic history and modern India, a completely
different narrative of Indian economic history is required. The main takeaway from the article
is that when focusing on the impact of colonialism on India’s economic history one fails to
look at the continuities that emerge from the economic structure or local conditions.

“BRITISH COLONIAL EXPLOITATION OF INDIA AND GLOBALIZATION.” By

Kundan Kumar Thakur

This article focusses on the connection between colonisation of the Indian economy and the
economic globalisation of India and whether the colonialism still exists wherein it is masked
under the term ‘globalisation’. Globalisation is considered to be an instrument through which
colonialism can still be continued. Developed countries consider it as progress whereas the
developing countries have a different opinion. It is merely another form of colonial
exploitation.

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“Colonialization of the Indian Economy, 1757 - 1900.” By Irfan Habib

The article mainly discusses on many propositions explaining the process of colonisation of
the economy of India between the years 1757 and 1900. According to the author each phase of
colonisation is different from each and have different impact on the Indian society, the factors
that governed each phase must also be given importance.

“Colonial India: British versus Indian Views of Development.” By Bipan Chandra

The article states that ideas related to economic development in colonial period is mostly dealt
and propagated by non-professionals. Contrast between British and Indian understanding
related to the factors that constitute economic development and the challenges to such
economic development. The British claimed that colonisation led to modernisation of the
Indian economy whereas the Indians claimed that colonisation ruined Indian culturally, socially
and economically.

RESEARCH OBJECTIVES

• To understand the economic position of India during the pre-colonial period

• To examine the colonial policies implemented and its effect on the Indian economy
• To understand the contrast between colonial and post-colonial period with respect to
economic situation
• To understand the imperial connection between Britain and India

RESEARCH QUESTIONS

1. Whether the economic position of Indian in the world has the colour of autonomy and
self-sustenance during the pre-colonial period?
2. How the colonial policies implemented by the British affected the economic structure
of colonial India?
3. Whether India has completely shrugged off the disastrous effect of colonisation?
4. How the British changed the economic structure of India in order benefit the people of
Britain in the expense of Indian development?

RESEARCH METHODOLOGY

Descriptive research is undertaken to explain the economic exploitation witnessed by India

under Colonial rule in this research paper. The research encompasses secondary sources such
as journal articles, books.

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 CHAPTER 2: PRE-COLONIAL AND COLONIAL INDIAN ECONOMY

The way in which the surplus of the land revenue was utilised by the Mughal empire determined
the political and economic structure of the pre-colonial India. The distribution of the surplus
among the ruling classes determined the hierarchy and position in the Indian society. The
application of the surplus by the ruling class laid the foundation of the economy of the urban
structure through large scale handicraft production, trade and commerce on a long-distance
basis. A nominal part of the surplus when to the zamindars, wherein their nominal share ranged
between one-tenth of the total land revenue in northern India and Bengal and one-fourth of the
total land revenue in Gujarat7.

The peasantry system was also stratified to a sufficient degree, the basic unit of assessment of
the land revenue started from the village. The peasants who occupied the upper strata of the
peasantry system, who later evolved into small zamindars regulated the collection of the land
revenue from the other peasants, they set the additional rates in order to meet the requirement
that is demanded of the particular village. The common expenses of the village is fulfilled
through the common financial pool which included customary payments made to artisans and
servants for their services to the village community8.

This forms the system of the village community. From the surface one can understand that the
village community was based on exploitation of the peasants belonging to the lower strata of
the peasant society by the upper peasants, this system allowed for more revenue collection from
the peasants and proved to be convenient for the zamindars and the ruling class. Below the
peasant stratification, were the lower castes who participated in menial jobs on lands owned by
the upper peasants and the zamindars and were paid in cash or grain9.

The domination of Indian economy by colonial officials began with the Battle of Plassey in
1757 which paved way for the British administration to enter more territories. Between the
years 1757 until 1813, the East India Company engaged in direct plunder through monopoly
trade. Monopoly trade was replaced by free trade with the Charter of 181310 which affected the

7
Irfan Habib. ‘Colonialization of the Indian Economy, 1757 – 1900.’ Social Scientist, vol. 3, no. 8, 1975, pp. 24.
8
Ibid.
9
Ibid.
10
Kundan Kumar Thakur. ‘British Colonial Exploitation Of India And Globalization.’ Proceedings Of The Indian
History Congress, Vol. 74, 2013, Pp. 406.

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indigenous industries and put the native artisans out of employment. The Industrial Revolution
modified the pattern of trade between the years 1813 and 1858, wherein India was turned into
a source for raw materials and a market for Manchester textiles and stripped out of its traditional
industries. India was forced to pay for the war expenses of the British empire and large amount
of money was applied in building the military in order to suppress the rising nationalist
movements which led to more liabilities faced by India11.

It is important to note that during the early years of nineteenth century, the GDP of India and
China combined was double the time higher that that of the GDP constituted by the whole of
western Europe. Later the contribution towards world GDP from the part of India began to
decline since the eighteenth century. Their economy began to grapple back to life only after
decolonisation and India’s contribution towards global economy increased. It is quite clear that,
colonisation did not result in development of the colonies rather led to development of the
colonising powers12.

During the later parts of the nineteenth century, agriculture sector began to enter into its
commercialisation era which were induced by trans-local markets. In the early nineteenth
century, indigenous product markets faced many challenges such as backward and risky
transportation, prevalent significance of the barter system and multiplicity of weights and
measures. The British administration brought modern technologies such as the infrastructure
of railways which eliminated the constraints faced in domestic product markets and led to the
integration of markets13.

The negative consequence of commercialisation of agriculture is that, the prices of agriculture

products was on constant raise. The price of the land, and the land rents also increased
simultaneously. Instead of millets, cash crops like cotton, oilseeds, tobacco, sugarcane and
wheat become more common in the agricultural sector. During the interwar period, the raise in
agricultural growth started to slow down due to the lack of cultivable waste lands and low
investment in irrigation and in addition the stagnation of the world economy, contributed to the
weakening of agrarian expansion. The small peasants devolved into labourers and only rich

11
Kundan Kumar Thakur. ‘British Colonial Exploitation Of India And Globalization.’ Proceedings Of The
Indian History Congress, Vol. 74, 2013, Pp. 406.
12
Aditya Mukherjee. ‘Empire: How Colonial India Made Modern Britain.’Economic and Political Weekly, vol.
45, no. 50, 2010, pp. 75.
13
Tirthankar Roy. ‘Economic History and Modern India: Redefining the Link.’ The Journal of Economic
Perspectives, vol. 16, no. 3, 2002, pp. 114.

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peasants witnessed economic benefits as the return to capital14 increased. Labourers involved
in agriculture and traditional industry began to move towards modern industry such as mines,
plantations15. Between the years 1850 and 1940, the employment in Indian factories increased
from zero to a million16.

CHAPTER 3: IMPACT OF COLONIAL POLICIES ON THE INDIAN ECONOMY

The perception of the Britishers and the Indians regarding development of the Indian economy
differs on a large basis. The colonialists consider colonisation of the Indian economy led to
rapid economic development of the economic structure and on the off side, the Indian scholars
believe that colonisation led to underdevelopment of the Indian society. The earlier part of the
nineteenth century witnessed Indian scholars holding a positive view towards the economic
impact of the British policies, but consequences later proved to be against their optimistic
view17.

The last parts of the nineteenth century were filled with views that the India was economically
degrading which was the result of the British economic policies rather than it being an inherent
situation. The idea of economic development under British colonialism was always evolved in
connection with economic backwardness by the Indian intellectuals. In the pre-colonial Indian
economy, there was a balance between industry and agriculture even though there was not
much economic development during that point of time. The colonial policies resulted in the
removal of the stability that was earlier present in the pre-colonial society18.

The rapid industrialisation put traditional artisans out of employment, which led to the
destruction of native handicrafts. This resulted in widespread unemployment and the
unemployed artisans and servants had to turn towards agriculture for survival. This led to more
pressure imposed on the land and ruralisation of the economy. Agriculture was ‘overcrowded’
and lack of modern techniques to improve productivity and limited modernisation that was

14
Tirthankar Roy. ‘Economic History and Modern India: Redefining the Link.’ The Journal of Economic
Perspectives, vol. 16, no. 3, 2002, pp. 115.
15
Ibid.
16
Tirthankar Roy. ‘The Economic Legacies of Colonial Rule in India.’ Economic and Political Weekly, vol. 50,
no. 15, 2015, pp. 54.
17
Bipan Chandra. ‘Colonial India: British versus Indian Views of Development.’ Review (Fernand Braudel
Center), vol. 14, no. 1, 1991, pp. 84.
18
Ibid.

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seen in the field of foreign trade and railways due to the economic policies of the colonialists,
which led to the underdevelopment of the Indian economy compared to what the Britishers
claimed that they had accomplished. Precisely, instead of India being transformed into modern
industrial economy by the colonising powers, it was utilised as a market and an exporter of raw
materials to the British empire19.

Ranade’s view on the economic situation of India was that, it was a plantation that produced
raw materials which was exported by the British merchants to Britain and was later transformed
into fabrics in the British industries and the manufacture products were later imported back
into India20.

When it comes to factors affecting the economic development of the economy during colonial
rule, the view conceived by the British is that raging increase in population and lack of proper
economic basis to begin with. These factors are a result of customary and traditional practices
and social institutions. They claimed that economic development was initiated in India by the
British due to its pre-existing low economic basis. Therefore, economic underdevelopment in
colonial India was not connected with colonial policies, instead with customs and traditions21.

With the victory of Battle of Plassey in 1757, Britain started to expand its power most of the
Indian territories and due to this, the economic development of the British empire was
significantly influenced. Usually, countries when involved importing goods from another
country, pays for the imported goods from its own resources, but in the case of colonial rule in
India, Britain pays for the imported goods from India through the tax collected from the seized
territories. In other words, ‘India was made to pay for her own exports’22.

This locked India into an unjust international trade wherein India did not experience any
economic benefit and the Indian exported goods which were paid out of revenue collected from
the Indian subjects was considered to be the compensation paid to the British for civilising the
Indian society23.

The transfers made to Britain from India due to this above-mentioned draining process
constituted about nine percent of the GNP of the British controlled territories in India that was

19
Bipan Chandra. ‘Colonial India: British versus Indian Views of Development.’ Review (Fernand Braudel
Center), vol. 14, no. 1, 1991, pp. 85.
20
Ibid.
21
Ibid.
22
Aditya Mukherjee. ‘Empire: How Colonial India Made Modern Britain.’ Economic and Political Weekly, vol.
45, no. 50, 2010, pp. 76.
23
Ibid.

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equal to thirty percent of British domestic savings that were available for the formation of
capital in Britain24. Accumulation of capital and the earlier phase of industrialisation in Britain
was fuelled by draining India’s wealth and undermining the living condition of the working
class and the farmers. The colonising power was able to drain such enormous amount of surplus
from their colonies which they were not able to drain from their own working class and
peasantry. The draining process constituted the first stage of colonialism which continued until
the last stage of colonialism25.

The traditional cotton textile industry of India began to fade out between the years 1820 and
1860. Initially the market for the exported Indian cloth was destructed and later hand-spun
cotton yarn and handwoven cloth was replaced with imported yarn from the British cloth mills.
The British empire after industrialisation was met with the necessity of finding markets for the
goods produced from the industries. British used its political control over India to modify state
policies in such a way that British cotton manufacturers began to remove production of Indian
cloth initially from the global market and later from the Indian markets as well. India
contribution towards world manufacturing output was 19.7 percent in 1800, which started to
steeply decline to a percentage of 8.6 in 1860 and 1.4 percent in 191326.

On the hand the export of British manufactured goods to India increased at a faster rate
simultaneously. The expulsion of Indian textiles from the global market by the British for the
benefit of their industrialisation process ended up kick starting the deindustrialisation process
in India pushing millions dependent on this industry to a pathetic situation27.

During the twentieth century after the first World war the Indian economy underwent several
changes. Positive industrial growth was experienced between the years 1914 and 194728. The
Indian cotton textile industry began to resurface again into the domestic market which was
ousted by the British. After the first world war, British did not give up Indian industry due to
growing pressure from the nationalists but rather shifted its interests in India from industrial to
financial29. It stopped focussing on India as a market to fulfil its industrial interests but rather

24
Aditya Mukherjee. ‘Empire: How Colonial India Made Modern Britain.’ Economic and Political Weekly, vol.
45, no. 50, 2010, pp. 76.
25
Ibid.
26
Tirthankar Roy. ‘Economic History and Modern India: Redefining the Link.’ The Journal of Economic
Perspectives, vol. 16, no. 3, 2002, pp. 111.
27
Aditya Mukherjee. ‘Empire: How Colonial India Made Modern Britain.’ Economic and Political Weekly, vol.
45, no. 50, 2010, pp. 79.
28
Ibid.
29
Ibid.

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turned its focus on capital accumulation by draining the wealth of India through imposing
higher rates of tax and land revenue30

CHAPTER 4: CONCLUSION

The economic position of India during the pre-colonial period on an international basis was
certainly better compared to that of the economic position under the colonial rule. The GDP
contributed by India towards the total world GDP was larger compared the GDP contributed
by India during colonial rule. The economic policies implemented by the colonial officials
which aimed to ‘modernise’ India resulted in the degradation of the Indian economy rather than
uplifting the economy. The benefits never returned India, it was merely used as a market and
an exporter of raw materials. India was bled dry during the colonial rule. A new form of colonial
exploitation is considered to be globalization.

The colonial policies were experimented in India and the effects of such implementation did
not turn out to be positive with respect to economic growth of India. The industrial revolution
in England had a tremendous impact in the Indian economy and pushed people involved in
traditional industries out of employment, and increase pressure upon the agricultural population
and land as the unemployed artisans began to join the agricultural sector. The
commercialisation of agriculture ruined the living conditions of small peasants and improved
the wealth owned by richer peasants and after a point of time it started to slow down as there
were no more cultivable waste land.

30
Aditya Mukherjee. ‘Empire: How Colonial India Made Modern Britain.’ Economic and Political Weekly, vol.
45, no. 50, 2010, pp. 79.

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 BIBLIOGRAPHY
ARTICLES:

Banerji, Arun, British Rule and the Indian Economy – Agenda for Fresh Searches Economic
and Political Weekly, vol. 19, no. 30, 1984, pp. 1273-84.

Chandra, Bipan, Colonial India: British versus Indian Views of Development. Review (Fernand
Braudel Center), vol. 14, no. 1, 1991, pp. 81–167.

De, Barun, The Political Economy of the Penetration of Colonialism in Indian Agriculture,
Economic and Political Weekly, vol. 25, no. 9, 1990, pp 437-440.

Gulati, S., “Export Expansion and Economic Stagnation in Colonial India.” Economic and
Political Weekly, vol. 27, no. 37, 1992, pp. 1979.

Habib, Irfan, Colonialization of the Indian Economy, 1757 - 1900. Social Scientist, vol. 3, no.
8, 1975, pp. 23–53.

Mukherjee, Aditya, Empire: How Colonial India Made Modern Britain. Economic and
Political Weekly, vol. 45, no. 50, 2010, pp. 73–82.

Rajan, M. S., The Impact of British Rule in India. Journal of Contemporary History, vol. 4, no.
1, 1969, pp. 89–102.

Robb, Peter, British Rule and Indian ‘Improvement. The Economic History Review, vol. 34,
no. 4, 1981, pp. 507–23.

Roy, Tirthankar, Economic History and Modern India: Redefining the Link. The Journal of
Economic Perspectives, vol. 16, no. 3, 2002, pp. 109–30.

Roy, Tirthankar, The Economic Legacies of Colonial Rule in India. Economic and Political
Weekly, vol. 50, no. 15, 2015, pp. 51-59.

Thakur, Kundan Kumar, British Colonial Exploitation Of India And Globalization.

Proceedings of the Indian History Congress, vol. 74, 2013, pp. 405–15.

BOOK:

Chandra, Bipan., Nationalism and Colonialism in Modern India, Orient Longman, 1996.

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