India in the World Economy 1900 to 1935: The Inter-War Depression and Britain's

Demise as World Capitalist Leader

Author(s): Utsa Patnaik
Source: Social Scientist , January–February 2014, Vol. 42, No. 1/2 (January–February
2014), pp. 13-35
Published by: Social Scientist

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 India in the World Economy 1900 to 1935:
The Inter-War Depression and
Britain's Demise as World Capitalist Leader

Utsa Patnaik

Introduction

The inter-war Great Depression, one of the most interesting periods in

the history of modern capitalism, saw an effective transfer of global power
from Britain to the USA. Apart from plunging the capitalist world into a
deflationary spiral of falling output, employment and trade, this period also
saw the demise of Britain as the world capitalist leader and the passing of
the mantle to a reluctant and unprepared United States of America. The
impact of the Depression is widely recognised to have been more severe
and more prolonged in USA than in Britain, so the fact of being caught up
in the Depression alone could not be the main reason for Britain's inability
to maintain any longer its long and undisputed position as the leader of the
world capitalist system. The difficulties of maintaining the smooth opera
tion of the international Gold Standard had started even before the Depres
sion as an outcome of the economic dislocation and imbalances caused by
the First World War, well described by W.A. Lewis in his Economic Survey
1919-1939. But by the mid-1920s Britain appeared to be back in its position
of undisputed leader of the capitalist world.
Capitalism is not a planned system, but has been described as a 'spon
taneous' system, subject to periodic crises mainly characterized by contrac
tion of aggregate demand and in extreme situations by economic collapse.
According to C.P. Kindleberger (1987), in periods of global recession car
rying the danger of generalised depression, the task of the world capitalist
leader is to either keep its economy open to free imports of distress goods
to shore up the level of activity elsewhere; or, to export capital to develop
ing economies and so keep up demand in the global economy. Britain
performed not one but simultaneously both these functions up to the mid
19208: it not only continued to be the largest exporter of capital to Europe
and to developing regions of white settlement, it also kept its markets open
to imports, running large trade as well as current account deficits with these
regions and so fulfilled the task of keeping up demand in the world econ
omy. In this very fact of performing both functions at the same time lay a
contradiction, for running large current account deficits is not normally
compatible with being a net exporter of capital: today the country with

Presidential address to the section 'Countries other than India', Indian History Congress,
Cuttack, 28-30 December 2013. 13

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 Social Scientist

the largest current account deficit, the USA, is the world's largest debtor.
o
fM Understanding how Britain was able both to run very large current account
deficits with its major trading partners and at the same time export capital
n
3
1—
to them, is also to understand why from the second half of the 1920s, it was
JD
<D
no longer able to do so and increasingly went into a terminal decline.
U_
Nobody could have predicted in the early 1920s, that within less than a
k
c5
decade Britain would find great difficulty in balancing its external accounts,
3
c
be forced finally to abandon the Gold Standard in 1931, and soon sink into
rt
the status of a second-ranking power. The analysis by economists in the
rs extant literature of why this happened is mainly descriptive, pointing to the
well-known fact that Britain's invisible earnings registered a sharp decline;
</i
O
but the unique composition of these invisible 'earnings', namely that a sub
Z stantial part was not 'earned' by Britain at all, is little understood, because

<N
a crucial element of Britain's long, successful innings as world capitalist
leader is never analytically taken into account.
This crucial element is the role that its colonies - especially its largest
£
colony, the Indian sub-continent, and later Malaya as well - were made to
play to provide, without recompense, the foreign exchange earnings which
ensured the relatively smooth functioning of the international payments
system based on the Gold Standard and centred on Britain, while entailing
little actual movements of gold. There are in fact two distinct arguments
here: as has been widely noted in the literature, Britain ran current account
deficits with its major trade and investment partners on the European
Continent, the USA and Latin America. One part of the argument is that
Britain's tropical colonies, especially India, played an important balancing
role in international payments because these colonies were made to develop
large and rising merchandise export surplus vis-à-vis the advanced indus
trial world as well as with the developing temperate economies. The export
surplus earnings of the colonies could be used by Britain to offset its deficits
with these regions, because Britain systematically ran what appeared to be a
large current account 'surplus' with India and other colonies.
This balancing role per se of India in particular is widely recognised
today after the work of S.B. Saul (1960), who remains the only scholar of
British trade to build up regional balance of payments data for selected
periods and for the major trading regions. Marcello de Cecco in his book
The International Gold Standard: Money and Empire (1984) devoted an
entire chapter to monetary developments in India, referred to Saul's work
and recognised the balancing role by pointing out: 'As we have shown
above, India's foreign trade was structured so that it realised a large deficit
with Britain but a large surplus with the rest of the world' (p. 71). But this
statement remains incomplete as a description of the essence of India's
trade relations with Britain. There is more to the matter than India running
a 'large deficit with Britain' which is the same as Britain running a 'large
14 surplus with India', which permitted Britain to balance its deficits with the

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 India in the World Economy 1900 to 1935

rest of the world. The matter is not of a balancing rôle alone, even if trade c
iï
was deliberately structured in the way Saul and de Cecco describe. ta

A country can well balance its overall payments by using earnings

?
from one part of the world to pay for the deficits incurred with another 3
ta

part of the world - this is a normal part of multilateral trade. It can use the
current account surpluses earned from one region to invest in a different
region. The economics textbooks discuss not only bilateral balancing, but
also multilateral balancing. An analysis of the balancing role that India was
made to play in international trade does not tell us the full story.
The additional, most important factor was that Britain only apparently
ran a large current account surplus with India, but in reality there existed
no large surplus at all for Britain vis-à-vis India, if the normal items of trade
and invisible payments are considered. The 'large surplus' for Britain arose
solely from government-administered invisible charges politically imposed
on a subject people, from pure colonial tribute. The tribute element in
Britain's trade with India emerged only from 1765 onwards with the acqui
sition of the sovereign right of tax collection by the East India Company,
since the tribute was nothing but the transfer of a portion of these tax rev
enues in the form of exported goods purchased out of the revenues.
Two periods need to be distinguished - from 1765 to the 1830s, when
the East India Company enjoyed a trade monopoly and Britain imported
more from India that it exported; and after the 1830s, when the surplus
turned into a deficit owing to British factory-produced textiles being
poured into the compulsorily open Indian market. In the first period from
1765 to the 1830s, there was not a deficit but a surplus for India in its trade
with Britain, as indeed there had been a surplus ever since that trade began
from 1600. The main items exported from India by the East India Com
pany were manufactured cotton textiles and primary products. The Indian
textiles were banned for consumption in England by laws passed in 1700
and strengthened in 1721, so the East India Company wholly re-exported
these textiles, mainly to Europe.
Up to 1765 India's export surplus had to be paid for by Britain in silver,
earning criticism from the mercantilist writers. From 1765 onwards, after
the Company acquired the sovereign right of tax collection, India's export
surplus to Britain no longer created claims on Britain as earlier because the
Indian artisan and peasant producers were now 'paid' out of the rupee taxes
(land revenue and indirect taxes) they themselves were obliged to pay to
the Company, hence the export surplus became a pure transfer to Britain.
With the rise of factory-produced textiles came the demand for the end of
the Company's trade monopoly, and from the 1830s onwards the second
period began with a reversal of India's trade pattern with Britain - from
a net exporter of textiles to Europe, India was obliged to become a net
importer of cotton yarn and cloth, and its trade surplus with Britain soon
turned into a deficit. 15

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 Social Scientist

But India's trade surplus with the rest of the world remained, ensuring
o
fS an overall trade surplus to the annual extent of Rs 33.5 million during the
>s
!_ triennium 1833-35 which doubled to Rs 67.4 million by 1842-44.1 This
(0
3
!_
second period, lasting for a long century, was marked by the relendess drive
jQ
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by the colonial government to increase India's trade surplus with the rest
Li.
of the world (starting with China and the forcible opium trade) and the
L
s_
Rt
resulting rising foreign exchange earnings were appropriated by impos
3
C ing administratively determined invisible charges to the extent required to
rt
siphon off these earnings, while the local producers of export goods contin
<N ued to be paid out of tax revenues.
This paper argues that not only was there a close causal connection
V)
O
between the exploitation of its colonies in the form of large and con
Z tinuously sustained unilateral transfers from them, and Britain's successful

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innings as world capitalist leader: but - and this argument follows once
the first proposition is accepted - that the agricultural depression from the
second half of the 1920s, which disrupted the colonies' ability to support
Britain's balance of payments, was a major cause of its collapse as a great
power. As the exchange earnings from its colonies registered sharp decline,
it became impossible for Britain to continue to export capital or meet its
deficits, precisely when the capitalist world required such countercyclical
lending to distressed nations from the leading power. Borrowing short
from Europe to lend long was resorted to briefly, but was not sustainable
and fatally undermined confidence in the pound sterling which was even
tually forced off gold, just as dozens of other countries had been forced off
gold earlier after futile and self-defeating attempts to solve the problem by
deflating their economies.
Folke Hilgerdtin had presented the pattern of merchandise trade
between countries and regions of the world for 1928 (The World Trade
Network, League of Nations 1942). Subsequently, two decades later, in
1962, the matrix of world trade by source and destination was prepared and
has been made available recently online by the United Nations for selected
seven years running from 1900 to 1958.2 This paper seeks to support its
proposition at the theoretical level and, by analysing the data on this matrix
of world trade, to show the changing relation between the total deficits Brit
ain incurred with the world and the export surplus earnings of the Indian
sub-continent which were used to pay for these deficits.

The Dependence of the International Payments Pattern

on Colonial and in Particular on India's Export Earnings
The period spanning the last quarter of the nineteenth century and lasting
up to World War I, the period of high imperialism, saw the fullest develop
ment of the multilateral payments pattern centred on the world capitalist
leader, Britain. A major and indeed decisive part was played by that coun
16 try's appropriation of the colonies' exchange earnings not only to cover its

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 India in the World Economy 1900 to 1935

current account deficits with Europe and the developing regions of new c
S
European settlement on three continents, but to export capital precisely to p

"O
these regions on a large scale. Britain invested little in its tropical colonies, P
r-t

but invested substantially on the European Continent, the USA and in the P

recent settlement regions (Ragnar Nurkse 1954) where it found it profitable

to do so. Since it already ran current account deficits with these regions,
by investing it ran up even larger balance of payments deficits (Saul 1960).
But it could do so with impunity and faced virtually no strains in operating
within the system of fixed exchange rates, the Gold Standard, because it
could entirely appropriate the large and increasing exchange earnings of its
tropical colonies from the rest of the world to offset its balance of payments
deficits thus achieving overall external balance.
What was recorded as the large 'invisible income' of Britain from its
colonies was only in part legitimate returns on investments by its nationals,
while the bulk was simply appropriation of the exchange surplus earnings
of its colonies from the rest of the world, which reached very large mag
nitudes in the period 1900 to 1928 as Tables 1 and 2 show. India alone
had the second largest net exchange earnings in the world after the USA,
for decades on end. These exchange earnings were not permitted to flow
back but were appropriated, by imposing politically determined invisible
charges to an equivalent amount not only under the usual heads (of so
called Home Charges, remittances and so on) but many additional heads
whenever required including munificent 'gifts' by British India to Britain,
which no Indian knew anything about.
Thus the specificity of Britain's relations with its colonies was that
either it did not have a current account surplus in its bilateral trade with
the colony at all taking the normal items of trade with it, items which exist
in the trade between independent sovereign nations. Or, if it did build up
a surplus on bilateral trade as it did with India by pouring its manufactures
into the compulsorily wide-open Indian market, and also earned some
positive invisibles income on normal items (shipping, insurance and so
on), its current account surplus was small relative to the very large mag
nitude of the current account surplus actually claimed by Britain vis-à-vis
India, decade after decade.
For example, in 1910 UK's merchandise plus gold surplus with India
was £19 million, but the amount it actually claimed as its credit with
India was a massive £60 million. The difference represented the politically
imposed liabilities by Britain on India, the tribute, which was raised to equal
India's export surplus earnings from the rest of the world. During World
War I India's exports to the world boomed as did those of Japan. The lat
ter used the extra earnings to build up its gold reserves, but India's extra
wartime exchange earnings were appropriated to the astonishing extent of
£100 million as a 'gift' from India to Britain - a 'gift' no Indian knew about.
Similarly, in 1928 UK's merchandise export surplus with India was $105 17

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 Social Scientist

million or £26.1 million only, while India's export surplus earnings from
o
rs the rest of the world was at an all-time high of nearly half a billion dollars,
x
s_ $497 million (Table 7) or £102.3 million. Adjusting for £14.1 million gold
rt
3 inflow India's balance of merchandise plus gold remained a massive £88.2
-Û
<U
million, which was appropriated by Britain through imposing, for account
LL.
ing purposes, invisible charges to the extent required.
=L
rt
Such continuous wholesale appropriation of India's global export
3
C earnings gave a tremendous flexibility to Britain's balance of payments,
(4
not only enabling it to run much larger overall current account deficits
<N than would have been possible by relying on its own resources, but even
to export capital on a much larger scale to the very countries with which
it had current account deficits. The control over the taxation revenues and
costless access it ensured over the primary products of colonised countries

<N
provided the material basis for the pound sterling being considered as good
as gold, accepted by the capitalist world as its reserve currency.

5 The standard expression of macroeconomic balance in open econo

mies as explicated in the textbooks does not conceptually recognise the
question of colonial transfers at all. In Patnaik (2006), a brief formal expo
sition was given of how these relations are modified once transfers are taken
into account. In particular, the identity expressing the relation between
the budgetary balance, the savings-investment balance and the external
balance is modified in specific ways once transfers are taken into account.
Thereby it was shown why the trade between Britain and its colonies was
not normal trade as depicted in textbooks, but a managed trade involving
a very substantial order of transfers from the colonies to the metropolis.
The reason for treating the export surplus of colonial goods to the
world (after adjusting for net payments on account of normal invisibles)
as transfer to the métropole, and not as normal export surplus, lies in the
tax-financed or rent-financed nature of all net exports from the colony.
This meant, firstly, that there was no external liability the metropolis had
to face on account of its own direct import surplus from the colony, as was
the case with its import surplus from any sovereign trading partner. In the
case of normal trade with a sovereign and equal trading partner, Britain's
import surplus had to be settled through either specie outflow or by allow
ing claims to be held against it (viz. by borrowing). But in the case of its
import surplus, say with colonised India, no such payment was required. If
an average Indian farmer-cum-artisan paid Rs 100 in taxes to the colonial
government, and then got back Rs 30 out of that as 'payment' for the cot
ton cloth/opium/jute/cotton for export that he sold to the world, this is
the same as his giving the total tax of Rs 100, divided into two parts - Rs
70 cash tax handed over from sale of domestically traded goods, and Rs 30
worth of exportable goods handed over gratis as tax. Suppose that of the
total of Rs 30 worth of export goods, one-third went directly to Britain: the
18 Rs 10 worth of imported cloth/opium/jute/cotton (in excess of any goods

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 India in the World Economy 1900 to 1935

exported from it to the colony) becomes completely costless to Britain, c

et
for it is the commodity equivalent of taxes that the Indian has paid. This f»

"O
import surplus creates no external liability, does not have to be paid for
to Indians in specie, nor does it lead to any claim by Indians on Britain. 13
S
Therefore the import surplus is not an 'import surplus', as in normal trade,
but is a transfer. There is a substantial Indian literature dealing directly or
tangentially with the transfer.3
Second, even after its direct export surplus to the metropolis ceased
to exist because it was kept completely open to factory imports from its
metropolis, as mentioned above the colony had substantial and rising for
eign exchange earnings from its export surplus with the rest of the world.
Local producers of export goods to the rest of the world were 'paid' in
local currency out of budgetary revenues to which they contributed taxes,
just as exporters directly to Britain were so 'paid'. None of these exchange
earnings from export surplus with the rest of the world flowed back to the
colony, but were appropriated and used by the metropolis to settle its own
large trade deficits with other sovereign countries, arising from its high
propensity to import from the world. It was simplicity itself for the colo
nial government to devise a payments system to appropriate the exchange
earnings.
As long as the East India Company had the trade monopoly (and India
had a trade surplus with Britain), it directly re-exported Asian and West
Indies cotton textiles and tropical goods - four-fifths of re-exports went to
Europe - and foreign currency earnings were thereby directly available to
Britain for purchasing its requirements from these lands, in excess of what
its domestic exports could purchase. Re-export of the mainly tropical goods
was very important indeed - during 1765 to 1804 re-exports boosted the
purchasing power of Britain's domestic exports by 53.5 percent (Patnaik
2006). Britain's re-exports were always positive and saw a surge a century
later up to 1913, when goods worth £110 million were re-exported (Saul
1960: 59, fh. 1).
The economic historians of Britain had systematically excluded re
exports from their calculation of what they called 'the volume of British
trade' without discussing why they did so (Deane and Cole 1969). They
defined 'the volume of trade' as the sum of imports retained within Britain,
and exports of domestically produced goods. But no textbook of macro
economics (Dornbusch and Fisher 1990; Krugman and Obstfeld 1994) and
no international body (World Bank, International Monetary Fund, United
Nations) uses this definition, which is called 'special trade'. The accepted
definition of trade when presenting data is always general trade where
Imports comprise all imports, namely retained imports plus re-exported
imports if any, and Exports comprise all exports, namely domestically
produced exports plus re-exports if any, of imported goods. The exclusive
use of their restrictive definition by the economic historians has led to a 19

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 Social Scientist

very large underestimation of Britain's actual trade and level of integration

o
es with the world economy, and completely vitiated comparison with other
S—
economies for which the correct definition is used.
cd
D
L_
By the triennium centred on 1800 the sum of Britain's imports and
-O
<ü exports was £82 million whereas Deane and Cole, using the special trade
LL_
concept which excluded re-exports, place it at a mere £51 million. In short,
i.
cd
the correct trade estimate is higher by 60 per cent than the estimates pro
3
c vided in the standard literature. The actual trade to GDP ratio in Britain by
cd
1800 was 56 per cent compared to 34 per cent estimated by Deane and Cole.
(For a detailed re-estimation of trade series of Britain using primary data
7 for the entire eighteenth century, see Patnaik 2000.) These underestimates
C/J

O
have crept into all subsequent writing (Kuznets 1967; Yamazawa 1990) and
have seriously misled development economists. A discussion and critique
CN
of the Kuznets estimates for Britain is available in Patnaik (2011).

I Appropriating the Colonies' Exchange Earnings

for Maintaining the International Payments System
Underlying the Gold Standard
After the East India Company's trade monopoly officially ended by 1833,
colonised producers were paid for exported goods through the use of rupee
bills of exchange by private traders. By 1861 the system had been formalised
to one where the major parts of payments by foreign importers of Indian
goods were made through exchange banks, to the Secretary of State for
India in Council in London. The foreign importers purchased bills (termed
'council bills') issued by the Secretary of State by paying in sterling and
other currencies up to the value of their imports. The crucial characteristic
of the bills was that they were encashable only in rupees - this was the fea
ture designed to deny exchange earnings to the colonised producers. The
sterling, US dollar, franc and other currencies as payment by the world
for India's net exports thus piled up in London, and the rupee bills issued
against these sums were sent by the foreign importers to the Indian export
ers (by post or by telegraph) for encashing through local exchange banks,
where these rupees in turn came out of the sums earmarked in the Indian
budget for that purpose, under the general head of expenditures incurred
abroad.4

This system also helped the colonial government to stabilise the

exchange value of the rupee (a consideration which became all the more
important following the prolonged fall in silver price and hence rupee
depreciation from 1873, which sharply raised the rupee equivalent of the
downwardly inflexible sterling tribute and led to increased tax extraction
from the Indian people - an unusually high incidence of famine in the
1890s was the result). As much as 25 to 27 per cent of rupee budgetary reve
nues were being so earmarked and transferred even in the Great Depression
20 years of the early 1930s, when export prices were falling. Taking a period of

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 India in the World Economy 1900 to 1935

130 years, India always showed export surplus except once. Reverse council c
a
bills (payment by Indian importers in rupees to foreign exporters, which W

-V
were encashable in sterling) came into operation owing to Indian import
s
3
surplus in only one brief three-year period immediately after World War P

I, since, owing to the wartime shortage of shipping, there had been a sharp
decline in imports into India and a compensating import surge once the
war ended.

On the Indian side of the balance of payments, the accounting mecha

nism through which such wholesale appropriation of the colony's exchange
earnings was rationalised by the colonial government was quite simple once
it is comprehended. The imposition of an annual politically determined
tribute in the form of administered invisible charges denominated in pounds
sterling (and, converted to equivalent rupees, shown in the budget as expendi
tures incurred abroad, 'gifts' to Britain and so on) was the, accounting means
through which the colony's earnings from export surplus to the world on
merchandise account adjusted for normal items of invisibles payments,
hence its normal current account surplus was entirely siphoned off for its
own benefit by the metropolis. These special invisible charges were admin
istered and hence autonomous in the sense that they were determined by
government and were not the outcome of the decisions of any individual
or corporate economic agents. Being tribute politically determined by the
colonial government, the charges could be easily manipulated, and were so
manipulated, to be at least as high as foreign exchange earnings from the
colonies' export surplus to the world, in order to siphon off these earnings.5
This politically imposed tribute was adjusted to trade surplus trends,
in an asymmetric manner. Thus, if earnings from the colony's merchandise
export surplus in a particular period rose to an unusual extent (as during
World War I), the administered part of invisible liabilities - the tribute -
was promptly jacked up with additional heads of special charges in order
to siphon off as much as possible of the extra earnings. India saw a massive
export surge from 1911 to 1919, taking its average annual export surplus to
Rs 743 million (over £50 million, or $240 million). Over and above the nor
mal annual transfer, additionally £100 million of India's war-time exchange
earnings, as earlier mentioned, was appropriated as a 'gift' by Britain from
British India, a gift that no Indian knew about, which represented 'more
than four years' worth of pre-War Home Charges or tribute remitted by
India to Britain' (Bagchi 1997: 522).
However the converse proposition was not true. If the colony's exports
happened to falter in a particular period - owing, say, to world recessionary
conditions - the tribute was not lowered, and the gap between tribute and
exchange earnings had to be covered by enforced borrowing by the colony,
which added to its interest burden.6 In addition, the major part of the gold
and securities reserve backing the colony's currency, although acquired
out of the colony's own resources, was mandatorily held in London and 21

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Social Scientist

freely used for Britain's own interests. The India Office placed money from
o
<N India's Gold Standard reserve with leading merchant bankers in the City at
only 2 per cent interest, while the bankers earned 3 per cent interest on the
cd
D
L.
London money market, making a lucrative profit (de Cecco 1984; Rother
JO
<D
mund 1996).
The mechanism of transfer analysed here was not limited to India
cd
alone, but was the typical mechanism, with specific modifications, in all
D
C other colonies where producers were not slaves but were nominally free
cd
peasants and artisans who were taxed (as in Java under the Netherlands;
CN Korea under Japan; and Ceylon, Burma and Malaya under Britain). The
I
colonised country was typically made to build up a rising merchandise
to
O
export surplus (which was sustained for 180 years in the Indian case), and
Z a slightly smaller order of current account surplus after factoring in net
(N
normal invisibles payments; but the imposition of the administered com
ponent of political charges ensured that it never had a final current account
surplus. No matter what heights the merchandise trade surplus might reach
£
(by 1911-13 India had the second largest annual trade surplus earnings in
the world at $175 million, after the USA and maintained this position up to
the mid-1920s), sufficiently larger invisible political charges were imposed
to mop up, and more than mop up, the increased export surplus earnings
and produce a small deficit on current account.7 Borrowing from Britain
then became necessary to balance overall payments, which added to future
interest burdens.

International trade and investment in this period was thus a looking

glass world where the trade-surplus colonised countries were obliged to borrow
capital, and the trade-deficit metropolitan countries became capital export
ers. A country with large and growing merchandise export surplus (India,
later Burma and Malaya as well) had more than its earnings siphoned off
through politically imposed invisible burdens and had to borrow, while the
country with large and growing trade deficits (Britain) was able through
these politically imposed and manipulated charges to appropriate the fast
rising exchange earnings of its colonies, more than offsetting its current
account deficits with sovereign regions, so that it exported capital to these
regions, and did so on an increasing scale.
For the period of high imperialism, we still have to rely on the only
study that exists - a most valuable one - which tries to trace regional trade
and current account balances: S.B. Saul's Studies in British Overseas Trade.
While this does not give us continuous time series which can be further
worked on, it does give us snapshot pictures for certain periods and dates.
The exchange earnings of all its colonies were used by Britain, but quan
titatively by far the most lucrative and important was India: Britain had a
deficit on current account plus gold with USA and the European Continent
in excess of 70 million pounds in 1880 (amounting to over 5 per cent of
22 its current-value GDP), and 25 million pounds of credit with India alone

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 India in the World Economy 1900 to 1935

mainly on account of siphoning off India's exchange earnings through c

Crt
imposing invisible burdens. 'The position was that Britain settled more (U

"TJ
than one-third of her deficits with Europe and the United States through
ft
India' (Saul 1960: 56), while smaller sums were contributed by a number of =}
(U

other colonies' earnings. By 1910 the balance of payments deficit of Britain

with Europe, USA and Canada combined had increased to £120 million,
and adding the smaller deficits with other developing regions of European
settlement gave a total deficit of £145 million. The earnings from the export
surplus of India alone at that date was a massive £60 million pounds, made
to appear entirely as Britain's credit vis-à-vis India (ibid.: 58, Table XX).
As Saul (ibid.: 62) puts it, 'The key to Britain's whole payments pat
tern lay in India, financing as she probably did more than two-fifths of
Britain's total deficits.' From our own analysis of UN trade data, Table 8 of
this paper, we see that Saul's statement was correct: in 1913 India's global
exchange earnings from the rest of the world was 40 per cent of Britain's
deficits.

Further, 'The importance of India's trade to the pattern of world trade

balances can hardly be exaggerated' (Saul 1960: 203). As Britain's largest,
most lucrative colony, India alone was earning £71 million by 1913-14
from its global exports (ibid.: 197) - the second largest export earnings in
the world after the USA. These earnings were siphoned off by Britain to
pay for its own deficits, via a managed direct trade surplus with India plus
much larger political charges. 'Had not British exports, and particularly
British cottons, found a wide-open market in India during the last few
years before the outbreak of the war, it would have been impossible for her
to have indulged so heavily in investment on the American continent and
elsewhere' (ibid.: 88). There were additionally re-exports of Indian and
Straits Settlements goods from Britain to the tune of £25.8 million at that
date, nearly a quarter of all Britain's re-exports.
The transfer in fact greatly exceeded the amounts required for meeting
Britain's current account deficits with other regions alone: 'But this was by
no means all, for it was mainly through India that the British balance of
payments found the flexibility essential to a great capital exporting coun
try' (Saul 1960: 62 ).The same point can be put a little differently. Britain
shored up demand in the world outside its colonies, by continuously run
ning current account deficits with the European Continent and the USA,
and later with the other regions of European settlement - Argentina, Aus
tralia and Canada. It would have been impossible for Britain, at the same
time, to have exported capital to these regions, as it did, thereby developing
them rapidly, and thereby also incurring even larger and rising balance of
payments deficits with them, without access to the enormous exchange
earnings of colonised lands which were transferred to Britain to offset
deficits and substantially finance its capital exports. In the absence of the
transfers, the attempt to export capital to develop Europe, North America 23

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Social Scientist

and regions of recent European settlement, given negative current account

o
CN balance with these regions, would have put intense pressure on Britain's
X
L. balance of payments, would have forced loss of gold, departure from the
cd
3
L_
Gold Standard, and collapse of the global payments and indeed the capital
-O
a ist system, many decades before 1931.
Li
In short, capital movements were completely divorced from constraints
L_
n
of the current account balance as regards Britain's trade and payments with
=J
C developing temperate regions. Britain invested heavily in these regions
n
owing to profitability, quite undeterred that thereby it rapidly increased its
balance of payments deficit with these regions. Nor were there any offset
7 ting balance of payments surpluses of Britain to the required extent with
o
its tropical colonies, as long as the normal items of trade and payments are
Z considered: it is only the politically determined, administered item of invis

<N
ible tribute which allowed it to siphon off and use the colonies' exchange
earnings from the world.

£ In the last quarter century the US has been running large, continuous
current account deficits with the world, but without access to transfers in
the old form; it is consequently not an exporter of capital, but is the world's
largest debtor. The US as world capitalist leader finds itself in a more vul
nerable position today. While direct colonial control meant that Britain
could maintain the fiction that it was settling its deficits and exporting capi
tal out of its own resources, no such veil is open to the USA. As has always
been the case, the poorest countries in the world - not only the advanced
surplus countries like Germany and Japan, but also China to a substantial
extent and India to a lesser extent, lend to the US to fill its yawning current
account deficits, allowing it to live well beyond its means and still maintain
the confidence of the capitalists in its currency being 'as good as gold'.

The 1942 League of Nations Study on the

Pattern of World Trade in 1928

Folke Hilgerdt (1942) prepared a study for the League of Nations wh

subsequently became famous, of the pair-wise exports and imports of t
major trading countries and regions of the world, using data relating
merchandise trade flows for 1928. This is valuable for showing the expo
surplus regions and the export-deficit regions. The diagram of the network
of world trade summarises the situation - however data for India were
not given separately but included in the broad region 'The Tropics'. Th
arrows point towards the country/region with the trade deficits while the
arrows point away from the countries/regions with the trade surpluses. It
important to note as Saul (1960) followed the opposite convention wh
depicting the network for 1913 in a similar form, but with arrows pointin
towards the trade surplus countries.
We have put in tabular form the figures given in the Hilgerdt diagram
24 (which are in million current US dollars) taking Exports f.o.b. minus

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 India in the World Economy 1900 to 1935

Imports c.i.f. as the definition of trade balance. The picture which emerges c
G»
from Table 1 is starkly clear - there were only two regions or countries tu

■D
which had overall merchandise trade surpluses with the world, namely
S
the USA and the Tropics, of 880 and 690 respectively. The USA had trade Z3
tu

surpluses with every region of the world except the tropics vis-à-vis which
it ran a massive trade deficit of 950, while it earned surpluses totalling 1830
from the rest of the world. The Tropics in turn had trade surpluses with
every region in the world except UK, vis-à-vis which it had a trade deficit of

FIGURE 1

The System of Multilateral Trade, as Reflected by the Orientation

of Balances of Merchandise in 1928.

GERMANY

UNITED EUROPE EXCEPT

STATES' 'GERMANY ANO
UNITED KHGOOM

k UNITED
TROPICS
P KINGDOM

1. Folke Hilgerdt (1943), 'The Case for Multilateral Trade', p. 394: The diagram in this
source has been modified and presented as above in L. de Benedicti and L. Tajoli (2009).
The figures show the pair-wise balance of trade among the six specified countries or
groups, measured in millions of [current] US dollars. Of the two amounts shown on the
arrow between any two groups, the smaller is the export balance of the group from which
the arrow emerges, and the larger the import balance of the group to which the arrow
points. Exports are f.o.b. while imports are c.i.f. namely inclusive of freight and insur
ance so the values differ. Thus, US Imports from the Tropics and Exports to it were 1,820
and 870, so its trade deficit was (—)950; Imports of the 'Tropics' from the United States
were however not 870 but 1,010 since c.i.f. values are being used, similarly exports of the
'Tropics' to the United States were 1,650 and not 1820 because f.o.b. values are taken so
its trade balance was (+)640. The difference is due to transport cost and freight insurance.

2. The countries considered in the League of Nations volume accounted for nine-tenths of the
world's trade in 1928. Only the United Kingdom, the United States, and Germany are shown
separately; the other countries were grouped in three categories: the 'Tropics' (including Cen
tral Africa, the tropical agricultural and the mineral producing countries of Latin America and
tropical Asia), the 'Regions of recent settlement in the temperate belts' (including the British
dominions of South Africa, Canada, Oceania, and Argentina, Uruguay, and Paraguay), and
'Europe' with the exception of the United Kingdom and Germany. See League of Nations
(1942), table 20-23, table 44 and Annex 3 for details on the classification and country data.

League of Nations (1942), The World Trade Network, Princeton, Princeton University Press. 25

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 Social Scientist

TABLE 1: The Pattern of Global Trade Balances by Countries and Regions from Figure 1

Trade Bal
of USA Tropics UK Germany Europe Temperate Total Total Overall
excl. UK& Recent Pos. Neg. Bal
Germany Settlement Bal Bal
with

USA -950 610 190 430 600 1830 950 880

Tropics 640 -350 180 190 30 104Q 350 690

UK -670 210 -100 -810 -100 210 1680 -1470

Germany -280 -280 80 390 -330 470 890 -420

Rest of
Europe -620 -330 480 -550 -660 480 2160 -1680

Temperate
Recent
Settlement -670 -130 80 250 460 790 800 -10

All

Europe -1570 -400 560 -650 -70 -1090 560 3780 -3220

350, while its total of trade surpluses was 1040. The trade of the temperate
regions of recent settlement was balanced, with the surpluses earned from
Europe being almost the same as the deficits incurred with the Tropics and
the USA.

One drawback of this study relating to 1928 is that for the UK, follow
ing the incorrect usage of the British economic historians, only the imports
retained within UK is given under 'Imports' and the re-exported part of
imports is left out. The Export figures however are total exports. As the
coloniser of a major part of the tropical world Britain always imported
much more of tropical goods than it absorbed itself, and re-exported a sub
stantial amount to purchase temperate land goods. In Figure 1 and Table 1,
Imports of UK is underestimated by taking only retained imports, therefore
its trade deficit is underestimated too. Fortunately the later 1962 UN study
gives us both the domestic exports and re-export figures for UK. In the
1942 study the overall 1928 trade deficit of UK comes to $1470 million,
whereas from the later 1962 UN study the trade deficit for the same year
was $1876 million. The difference of nearly $400 million is the re-exported
imports.

The Sharply Rising Exchange Earnings of India up to 1928

The country trade data from United Nations statistics relating to India for
the period 1900 to 1913 and from 1921 to 1938 are summarised as three
year annual averages in Tables 2 and 5. The data for the years 1914 to 1920
are not available in the source. We see that India's annual export surplus
26 earnings reached a very large magnitude of nearly $100 million during 1900

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 India in the World Economy 1900 to 1935

to 1906, and increased to nearly $140 million over the next seven years to
(/)
1913. From Indian sources we know that the War period saw an export tu

-O
surge, largely owing to the European belligerent countries* demand for jute %
for sandbags and other war materials. Between 1911 and 1919 the export D

surplus of British India (which included Burma up to 1935 apart from the
territories of present-day Bangladesh and Pakistan) was on average $240
million or about £50 million applying the pre-War exchange rate. After

TABLE 2: India's Trade Balance with the World 1900 to 1926 (in million US dollars)

Balance Exports Imports

1900-01 54.5 367.5 313

1902-04 118.4 467.7 349.3

1905-07 97.6 547.3 449.7

1908-10 128 584.3 456.3

1911-13 174.7 765.3 590.7

1924-26 329 1238 909

Note: Three-year averages calculated from annual series, except the first period which is a
two-year average. India includes present-day Bangladesh, Pakistan and Burma.
Source. Calculated from Table XIII, International Trade Statistics 1900-1960, United Nations,
1962, www.unstats.un.org/unsd/trade/imts/Historicaldatal900-1960.pdf

FIGURE 2: India's Merchandise Trade Balance with the World 1900 to 1926

350

300 ■

250

200 ■

150

100

50

0J

1900-01 1902-04 1905-07 1 908-10 1 911-13 1914-19 192426

Million US Ddlar

Source: Table 2. 27

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Social Scientist

TABLE 3su India's Export Earnings from the World by Main Destinations (Selected years 1900 to 1938)
(in million US dollars)

Europe UK US & W Asia Latin Japan China & Sub Total Per
incl. Canada America SEAsia Total Exports cent

Russia to

Total

1900 82 118 28 52 5 21 21 327 374 87.4

1913 308 224 90 68 16 74 33 813 886 91.8

1928 391 335 183 78 56 127 62 1232 1392 88.5

1935 139 231 81 38 17 85 19 610 694 87.9

1938 151 289 77 50 18 58 35 678 894 75.8

Source. International Trade Statistics 1900-1960, United Nations, 1962, www.unstats.un.org/unsd/trade/

imts/Historicaldatal900-1960.pdf Tables XXIV, XXV. 256 1057

Table 3b: India's Imports from the World by Main Sources (Selected years 1900 to 1938) (in million US
dollars)

Europe UK US & W Asia Latin Japan China & Sub Total Per
inch Canada America SE Asia Total Exports cent

Russia to

Total

1900 43 155 5 20 0 2 6 231 260 88.8

1913 95 362 11 30 0 15 10 523 610 85.7

1928 192 440 69 66 1 69 38 875 1000 87.5

1935 101 203 36 68 2 85 29 524 570 91.9

1938 107 198 43 67 0 63 30 508 670 75.8

Source: As Table 2a, Tables XXIV, XXV.

the post-War deflation, Table 3 shows that from 1921 to 1928 the export
surplus averaged $200 million. As late as 1928 a peak level of exports $1229
million was achieved, mainly because export quantum or volume increased
to compensate as prices started to decline from 1925. As in other poor
countries, rising volume exports at falling unit prices or a backward-sloping
supply curve indicated distress sales arising from the obligation to meet
cash taxes and interest loans.
Over the triennium 1924-26 India's annual export surplus reached an
all-time high of $329 million. The growth rate of India's export surplus
over the period 1900 to 1925 works out to 7.5 per cent per annum, certainly
remarkably high for a country whose economic performance in terms of
GDP growth was lack-lustre.
Primary products exports entailed the heavy cost of falling food grains
production and falling per head food grain availability for the population.
In effect the colonial government perpetually operated a surplus budget
28 in India by spending much less than total revenue collected under normal

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 India in the World Economy 1900 to 1935

budgetary heads, since it set aside up to a third of the revenues as domestic c

a
'payment' against the export surplus of goods. This exerted a severely defla
"O
tionary impact on incomes, lowering mass purchasing power. This was the
s
economic mechanism for lowering domestic consumption and squeezing
out export goods from an abysmally poor population. Since the exchange
proceeds from export surplus were never permitted to flow back, the means
of financing capital goods imports for setting up modern current value
exports to the rest of the world excluding UK grew at the annual rate of 5.2
per cent over these three decades while export surplus grew even faster. The
source of export surplus earnings is shown in Table 4. The share of Europe
rose from 25 to 40 percent over 1900 to 1928, while the share of US and
Canada rose from below one-sixth to nearly one-quarter by 1928.
Kindleberger (1987) observes that the world agricultural depression
preceded the industrial depression and provides a lengthy analysis of the
impact, referring mainly to detailed studies by other authors. From end
1925, primary product prices started a prolonged decline and this directly
led to external imbalances for the mainly primary products exporting
countries. At that time both USA and Germany were substantial exporters
of primary products, which made up the bulk of the export basket of the
regions of recent settlement in Latin America, South Africa and Austra
lia-New Zealand. The fiscal compression aiming at balanced budgets, the
deflationist British Treasury view which was misguidedly advised for these
countries and faithfully followed merely made matters worse since, being
universally and repeatedly applied, it led to a general reduction of the
demand for each other's exports on the part of the deflating countries and
sent their external accounts even more into the red. The ideas put forward
by Keynes and the German trade union leaders on the need to expand
public expenditure to counter rising unemployment were not heeded
even when deep depression had set in. The Latin American countries and
the British dominions suffered the earliest and largest loss of gold in the

TABLE 4: India's Global Merchandise Trade Surplus by Source of Earnings (Selected years
from 1900 to 1938)

India's Merchandise Trade Balance with the World excluding U.K.

BALANCE PER CENT SHARE OF TOTAL BALANCE

excl. Europe US & WAsia Latin Japan China, All Total

UK incl. Canada America SEAsia Other
Russia

1900 151 25.83 15.23 21.19 3.31 12.58 9.93 11.93 100

1913 414 51.45 19.08 9.18 3.86 14.25 5.55 (—)3.04 100

1928 497 40.04 22.94 2.41 11.07 11.67 4.83 7.04 100

1935 96 39.58 46.88 (—)31.25 15.63 0 (-) 10.42 39.58 100

1938 133 33.08 25.56 (-)12.78 13.53 (—)3.76 3.76 40.61 100
29

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Social Scientist

attempt to maintain the fixed exchange value of their currencies, and were
o
CN soon forced to go off gold and devalue.

D The Extent of Decline of India's Trade

L.
_o
0 India did not face severe loss of export earnings until after 1928, b
U_
plunge was very sharp thereafter. The effects of continuing global pri
1
L_
n
price deflation on exchange earnings could not be staved off indefinite
D
c raising volume exports, particularly since in India too the colonial g
ment implemented sharp fiscal compression as regards domestic spe
<N on irrigation, railways and so on, which affected agricultural output.
I
The Indian sub-continent's export surplus earnings from the w
</>
o
declined from an annual average of $329 million during the trien
z 1924-26 to a only $73 million by 1930-32 (Table 5, Figure 3). Excl
(N
its trade with UK, India's surplus with the rest of the world declined f
its peak of nearly $500 million in 1928 to $96 million by 1935 (Tabl
£ by 80 per cent over seven years. According to S.G. Triantis (1967),
were only six other countries or regions in the world which suffe
larger relative decline in earnings than did India, mainly located in
America; but these regions and countries had each a much smaller

FIGURE 3: Decline in India's Trade Surplus with the World (1924 to 1938)

35Ü
350

300

250

o 200

I 150

100

50

192+26 1927-29
1927-29 193Ü-32
1930-32 1933-35
1933-35 1936-38

30 Source. Table
Table 2.
2.

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 India in the World Economy 1900 to 1935

Table 5: India's Trade Balance with the World (1924-38) (in million US dollars, current c
values) G>
p

"U
Year
Year Balance
Exports Imports $
1924-26 1238 909 329 p
7T
1927-29 1182.3 993 189.3

1930-32 558
558 485 73

1933-35 566.7 469 97.3

1936-38 668.5 590.3 78

Source. As Table 2.

than did India. Since the exchange earnings from the rest of the world by
its colonies and especially India had been the mainstay of Britain's global
payments network, it is not surprising that such precipitous decline should
cause a severe crisis given that Britain had little possibility of significandy
reducing its trade deficits with the world excluding its colonies. By 1928
Britain's total annual trade deficit excluding the Indian sub-continent had
reached a peak at over £400 million or nearly two billion US dollars, and
this despite the fact that the prices of its imported primary products had
been falling for three years.

Proportionate Importance of India's Surpluses in

Financing Britain's Deficits
The Indian sub-continent's total export surplus earnings from the world
excluding UK in 1913 had amounted to fully 40 per cent of the total of UK's
trade deficits with the world. By 1928, this share declined to 26.5 per cent
and fell sharply further to only 7.1 per cent by 1935. If we had the time
series data we could add the export surplus of other colonised regions like
Malaya, which was supplying $92 million or nearly £20 million annually to
Britain by the mid-1920s and whose earnings fell even more sharply than
did India's. In effect the foundation of the entire structure of Britain's long
imperium was destroyed with the decline in export earnings of its colonies.
The full effects of the structural collapse were masked owing to the
enormous outflow of distress gold from India as millions of small produc
ers, especially the peasantry, faced ruin with declining agricultural prices
and pro-cyclical contraction in public spending. They were forced to sell
what little assets they had: 3 billion rupees or £236 million worth of gold
left India between 1931 and 1937. Other primary producing countries had
seen equally massive gold loss even earlier. This gold outflow certainly sub
stantially cushioned Britain's balance of payments - Rothermund (1996) is
right in that, but his statement that it 'solved all the problems Britain had
faced before' (ibid., p. 91) is not quite as tenable. The relative magnitude
of India's loss of export surplus earnings, which hit Britain hard, has to be
compared with distress gold outflow. Large as it was, annual gold outflow 31

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 Social Scientist

TABLE 6: United Kingdom Trade Balance with the World including and excluding the
o Indian Sub-continent (in million US dollars)
<N

UK Import Exports UK Trade UK Imports UK Exports UK Trade

cti
D from from UK Balance from World to World Balance with
L_
JO the World to World with World excl. India excl. India World excl
<L)
LL_ Sub-cont Sub-cont India Sub-cont

L 1900 2290 1417 -873 2172 1262 -910

a
D
C
1913 3590 2556 -1034 3366 2194 -1172
«J
1928 5380 3504 -1876 5045 3064 -1981

2
1935 3420 2073 -1347 3189 1870 -1319

1938 3880 2421 -1459 3591 2223 -1368

U)
O 1948 7120 6301 -819 6647 5735 -912
Z
1953 8190 7153 -1037 7690 6619 -1071
(N
1959 10130 9304 -826 9593 8599 -994

£
TABLE 7: The Indian Sub-continent's Trade Surplus Earnings from the World excluding
UK (in million US Dollars)

Indian Indian Indian Indian Indian Indian

Sub-cont Sub-cont Sub-cont Sub-cont Sub-cont Sub-cont

Mfrom
M from Xto Trade Mfrom
M from World
World X to World Trade Bal
World World Balance excl. UK excl. UK excl. UK

1900 260 374 114 105 256 151

1913 610 886 276 248 662 414

1928 1000 1392 392 560 1057 497

1935 570 694 124 367 463 96

1938 670 894 224 472 605 133

TABLE 8: Ratio of Indian Sub-continent Trade Surplus Earnings to UK Trade Deficit

1 2 3
Indian Sub-con UK Trade Share of
Trade Balance Balance with 1 in 2
excl. UK World (per cent)

1900 151 -873 17.3

1913 414 -1034 40

1928 497 -1876 26.5

1935 96 -1347 7.1

1938 133 -1459 9.1

from India amounted to just one-third of the annual level of India's global
earnings just before the decline. The distress gold loss by India, which
32 was Britain's gain, could not avert the impact on Britain of the collapse

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 India in the World Economy 1900 to 1935

of India's much more massive net exchange earnings from the rest of the c
a
world, which would have totalled at least £700 million over the same period |U

■u
had the depression not reduced it so drastically. Moreover, gold outflow tu
rt

had to taper off as it did by 1938 while India's exchange earnings did not 3
E
recover (Figure 3). The immediate casualty for Britain of the collapse of TT

India's exchange earnings was capital exports by it, a luxury which could
no longer be afforded since India, the goose that laid the golden eggs for
Britain's benefit - literally so during 1931 to 1937, could no longer continue
to do so in the context of world depression.
For a time, borrowing short from European banks to lend long to
its traditional destinations was resorted to but proved unsustainable.
The basic cause of Britain's crisis of empire after 1928, namely the sharp
decline of its colonies' exchange earnings which had been used by Britain
for decades on end to pay for a large part of its deficits, to this day finds
hardly any mention in the literature. S.B. Saul's work, now half a century
old, has not been followed up to construct time-series of regional balances
by scholars in the developing world; the economics profession continues to
ignore the fact that 'the importance of India's trade to the pattern of world
trade balances can hardly be exaggerated' (Saul 1960: 203). With the 1931
Smoot-Hawley tariff in USA and a wave of protectionism by other coun
tries, Britain resorted to Imperial Preference which erected tariff barriers
with non-Empire countries; but it found it impossible to continue to lend
capital to distress-hit nations of recent settlement.
This did not mean that colonial exploitation ended with the inter-War
depression: on the contrary, Britain extracted another £1200 million from
India over the six-year period 1941 to 1946, by placing most of the burden
of financing the Allies' war expenditure in Asia, on the Indian revenues.
Three million lives were lost to the famine created by the way the colonial
government financed the war - but that is a separate story (Patnaik 1991).
What the inter-War depression and irrecoverable loss of exchange earnings
of India and other colonies did, was to dethrone the pound sterling from its
position of being considered 'as good as gold', and bring to a decisive end
Britain's position as world capitalist leader.

Notes
K.N. Chaudhuri (1985) provides annual series of trade from which the trade
balance can be derived.
United Nations, 1962, International Trade Statistics 1900-1960, available at
www.unstats.un.org/unsd/trade/imts/Historicaldatal900-1960.pdf, accessed on 20
August 2011. The data are stated to be provisional.
The relevant literature includes, among others, Dadabhai Naoroji (1962); R.C.
Dutt (1970); T. Morison (1911), whose book was reviewed by J.M. Keynes (1911);
Y.S. Pandit (1937); B.N. Ganguli (1965); S. Habib (1975); A.K. Bagchi (1976,1989,
1995); A.K. Banerji (1982); I. Habib (1995); K.N. Chaudhuri (1985); S. Sen (1992);
and D. Banerjee (1999). 33

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Social Scientist

For an exposition of the mechanism of tribute transfer in diagrammatic form, see

o Patnaik (1984).
ts
Colonial administrators were clear regarding the working of the mechanism of
rt tribute transfer, even while, as direct beneficiaries, they complacently rationalised
3
it. Bagchi (1989: 71) quotes L. Mallet, permanent under-secretary of state for India,
JO
a> from his 1876 memorandum: 'India sends to England every year about 20,000,000
I. sterling worth of produce, with no commercial equivalent. ... In other words,
India incurs an annual commercial loss of 20,000,000 I. on her foreign trade, in
C3
3 return for the advantages [sic] of British rule.... And it will accordingly be found
C
a that in a series of years the excess value of Indian exports over Indian imports
in round numbers corresponds with this amount of so-called tribute, which is
composed partly of the "Home Charges", and partly of private remittances....'
7 T. Morison (1911) and Y.S. Pandit (1937) both estimated the extent of capital
V) imports into India.
O
Z The strong export surge just before World War I defeated the ingenuity of India's
rulers in thinking up new heads of appropriation, and for two years only - 1910
fS and 1911 - Britain appears to have imported capital from India, according to Saul
(1960).
£
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Utsa Patnaik is Professor Emeritus of Economics, Jawaharlal Nehru Uni

versity, New Delhi. 35

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