An Economic History of India

This book offers a major new economic history of India from the reign of
Akbar in the sixteenth century to India’s post-independence integration
into the global economy. Using concepts and theories from economics
and economic history alongside extensive new data, Bishnupriya Gupta
builds a new framework for understanding the economic impacts and
legacies of British rule. She charts India’s transition from precolonial
economy to colonial rule and evaluates its economic performance from
a comparative perspective, particularly in the context of the Great
Divergence between Europe and Asia. Finally, she examines India’s
post-independence economy and the evolution of social and economic
inequality through to the turn of the twenty-first century. By taking a
long view, the book sheds new light on the persistent effects of historical
institutions as well as the impacts of policy-driven changes. It will be
essential reading for anyone seeking to understand the long-run evolu-
tion of the Indian economy.

Bishnupriya Gupta is Professor of Economics at The University of

Warwick and the research director of CAGE Research Centre. She has
published widely on industrial development in colonial India, gender
norms in India and is a key contributor to the debate on the Great
Divergence.

Published online by Cambridge University Press

 Cambridge Studies in Economic History

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 An Economic History of India
Growth, Income and Inequalities from
the Mughals to the 21st Century

Bishnupriya Gupta
The University of Warwick

Published online by Cambridge University Press

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DOI: 10.1017/9781108869065
© Bishnupriya Gupta 2025
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For
Dhruva, Cherry and Anirban
 Contents

List of Figures page viii

List of Maps x
List of Tables xi
Acknowledgements xiv

Introduction 1
1 The Decline and the Rise of the Indian Economy 16
2 Agriculture as the Engine of Growth 43
3 From Handlooms to Modern Industry and the Emergence
of a Planned Economy 77
4 Origins of India’s Service Sector Advantage 108
5 Region, Income, Caste, and Gender: Continuity
and Change 130
6 Colonial Development in a Comparative Perspective 161
Conclusion: The Myths and the Realities of India’s
Long-Run Development 187

References 192
Index 212

vii
 Figures

1.1 Per capita GDP in India and other developing countries

(1950) (1990 International Geary-Khamis dollars) page 17
1.2 Changes in GDP per capita in Asia and Latin America
(1910–1950) (1990 International Geary-Khamis dollars) 17
1.3 Grain wage, cloth wage, and consumption wage
(1600–1871): 1871=100 26
1.4 Absolute and relative decline of Indian GDP per capita
(1600–1871) 28
1.5 Industrial and agricultural exports per
capita relative to GDP per capita (1871=100) 32
1.6 Agricultural and industrial output per
capita relative to GDP per capita (1871=100) 33
1.7 The Great Divergence between India and
Britain (1600–1947) 36
1.8 Reversal of fortune: Indian per capita GDP
(1900–2000) (1990 International Geary-Khamis dollars) 41
2.1 Agricultural map of India (1911) 46
2.2 Land tenure systems 50
2.3 Expansion of the railway network 54
2.4 Share of food crops on irrigated land (1920) 61
2.5 Changes in yield per acre by crop: KG/HA (1950/51=100) 71
3.1A Community concentration at entry in cotton textiles
firms in the Bombay region (1860–1910) 86
3.1B Community concentration at entry in cotton textiles
firms in the Ahmedabad region (1860–1910) 86
3.2 Community concentration at entry in jute textiles
firms in the Calcutta region (1914–1930) 87
3.3 Growth in industry (1900–1947) in million Rupees
in 1938/39 prices 92
3.4 Growth of subsectors in the modern manufacturing industry 93
4.1 Relationship between literacy and share of the service
sector in employment 117

viii
 List of Figures ix

4.2 Sectoral GDP in 1948/49 prices (log scale) 122

4.3 Output per worker by sector in million Rupees in 1948/49
prices (1901–1945) 123
4.4 Human capital by sectors (2001) 128
5.1 Correlation between GDP per capita for
provinces (1911 and 2003) 133
5.2 Poverty–headcount ratio (1951–2006) 135
5.3A Correlation between per capita GDP for the provinces
(2003) and poverty–headcount ratio (2000) 137
5.3B Correlation between per capita GDP growth for the provinces
(1980–2000) and poverty–headcount ratio (2000) 138
5.3C Correlation between literacy in 1973 and the
poverty–headcount ratio for provinces (2000) 138
5.4 Changes in the top income shares (1885–2000) 143
5.5 Differences in heights by social classes (1915–1940) 148
5.6 Correlation between 0–10 sex ratio (1931) and
0–9 sex ratio at the district level (2011) 157
5.7 Missing women by age groups (1921) (per cent
female in the population) 159
6.1A GDP per capita in the developing countries in Asia and
Latin America in 1990 International Geary-Khamis
dollars (1910–1950) 162
6.1B GDP per capita in the developing countries in Asia and
Latin America in 1990 International Geary-Khamis
dollars (1910–2000) 162
6.2A Change in GDP per capita in four colonial economies in
Asia in 1990 International Geary-Khamis dollars
(the colonial period) 163
6.2B Post-colonial divergence: India, Indonesia, South Korea,
and Taiwan in 1990 International Geary-Khamis dollars 163
6.3A Public school enrolment in Korea and Taiwan 177
6.3B Gender gap in school enrolment in Korea and Taiwan 177
6.4A Structural change in India (1900–2000) 182
6.4B Structural change in Korea (1910–2000) 182
6.4C Structural change in Taiwan (1910–2000) 183
6.5A GDP per worker in colonial India in million Rupees in
1948–49 prices (1905–1945) 184
6.5B GDP per worker in colonial Korea in 1,000 Yen in
1935 prices 185
6.5C GDP per worker in colonial Taiwan in 1,000 Yen in
1935 (1905–1940) 185
 Maps

I.1 Rainfall map of 1908 page 6

I.2 Mughal India 7
I.3 Political conquest by the East India Company 8
I.4 British India 9
I.5 Partition of India 10

x
 Tables

1.1 Indian silver and grain wages (1595–1874) page 23

1.2 An England–India comparison of the daily wages of
unskilled labourers (1550–1849) 24
1.3 Allen’s bare-bones consumption basket for India 27
1.4 Changes in GDP by sector (1600–1871) (1871=100) 30
1.5 Indian and British GDP per capita (1600–1871) (1990
International Geary-Khamis dollars) 31
1.6 Economic growth in the long run (% per year) 34
1.7 Share of trade in income: from colonial times to
independent India (%) 35
1.8 Accounting for growth: a long view (1950/51=100) 40
2.1 Yield per acre (1600–1960) 47
2.2 Composition of revenue (1858–1940) 50
2.3 Changing composition of Indian exports (1811–1935) 52
2.4 Land under irrigation (% share) 58
2.5 Comparative yields per acre (lbs per acre) 60
2.6 Gross domestic capital formation 62
2.7 Government spending on infrastructure: irrigation
and railways 62
2.8 Changes in yield per acre, before and after independence
(% per year) 63
2.9 Differences in growth in yield per acre by region and by crop
(1891–1946) 64
2.10 Frequency of famines (1759–1947) 65
2.11 Average annual growth in the value of agricultural output 71
2.12 Expansion in irrigation as a share of total cultivated land 72
3.1 Best-practice labour productivity in spinning 80s yarn
in England (1780–1825) (operative hours to process 100 lb)
in comparison to traditional technology in India in
the eighteenth century 80
3.2 Emergence of British comparative advantage: relative
total factor input cost, price, and total factor productivity 80
3.3 Sterling and Rupee investment (1914–15) (£m) 84

xi
xii List of Tables

3.4 Shares of subsectors in net output in modern manufacturing 93

3.5 Capital formation and the public sector 97
3.6 Share of manufacturing in gross fixed capital formation
(%) in a comparative perspective 97
3.7 Annual industrial growth by sectors (1951–2004) (%) 99
3.8 Top ten business groups by assets (1939, 1958, 1981, 2000) 101
3.9 Economic reform and growth in manufacturing industry:
organized versus unorganized sectors (% per year) 106
4.1 Sectoral shares of value added in GDP in comparable
developing countries and in employment (%) 109
4.2 Classification of households by occupational groups
in Golepa (1692) 112
4.3 Literacy among trading communities in
Bombay Presidency 114
4.4 Highest literacy by caste in selected provinces 115
4.5 Comparative enrolment rates (number enrolled per
1,000 school age population) 119
4.6 Share of secondary and higher education in total
government spending on education (%) 119
4.7 Changes in sectoral shares in GDP and employment
in the twentieth century (%) 121
4.8 Changes in sectoral labour productivity (% per year) 123
4.9 Sources of growth in output per worker (1960–2004) 125
4.10 Growth rates in selected services (% per year) 126
4.11 Sectoral labour productivity in India relative to Britain 128
5.1 Per capita provincial GDP in Rupees in 1948 prices 132
5.2 Changes in poverty gap and poverty–headcount ratio 136
5.3 Long-run between and within group income inequality
in India 140
5.4 Changes in province-level inequality in independent India 141
5.5 Share of growth captured by income groups
(distribution of per adult pre-tax income) 144
5.6 Caste literacy by province (1931) 147
5.7 Changing life expectancy at birth (1931–2001) 152
5.8 Changing life expectancy at birth by region (1931–1971) 153
5.9 Age-specific sex ratios in the age groups 0–15 by
region (1931) (males per 100 females) 154
5.10 Changing sex ratio in children 0–5 (1931) and 0–6
for all other years (males per 100 females) 156
5.11 Missing women in Indian provinces by age group (%) 159
6.1 Share of Japanese investment and human capital in
Korea (1940) (%) 169
 List of Tables xiii

6.2 Skilled personnel in Bombay cotton textile industry 170

6.3 Growth and composition of manufacturing industries (%) 170
6.4A Composition of exports from Korea to Japan 171
6.4B Composition of exports from Taiwan to Japan 171
6.5A Changes in agricultural production in Korea and Taiwan 174
6.5B Changes in agricultural production in Korea and Taiwan 174
6.6 Sectoral distribution of GDP and employment in
South Korea and Taiwan after 1950 (%) 179
6.7 Gross fixed capital formation and the share of
manufacturing (%) 180
6.8 Growth of exports (1950–1990) (%) 180
 Acknowledgements

This book brings together my work on colonial India and my under-

standing of the country’s long-run economic development. Many peo-
ple have helped in this journey. Among them are my co-authors, Steve
Broadberry, Latika Chaudhary, Johann Custodis, James Fenske, Dilip
Mookherjee, Kaivan Munshi, Cora Neumann, Tirthankar Roy, Mario
Sanclemente, Anand Swamy, and Song Yuan.
To Monobina Gupta, I owe the inspiration to embark on this book
project. To Steve Broadberry, I owe the conceptualization and measure-
ment of the Great Divergence between Europe and India, which forms
the core of Chapters 1 and 4. I owe many friends and colleagues for their
intellectual input into various research projects and for many discussions
over the years. Among them are Jean Pascal Bassino, Sascha Becker, Nick
Crafts, Kyoji Fukao, Mark Harrison, Debin Ma, Takashima Masanori,
Sharun Mukand, Sevket Pamuk, and Debraj Ray.
The pandemic put a brake on excursions to libraries and access to
data, books, and the old notebooks in my office. I thank the weekly vir-
tual happy hour community of colleagues – James Fenske, Dennis Novy,
Herakles Polemarchakis, Giacomo Ponzetto, and Claudia Rei – for keep-
ing discussions alive and staying afloat.
I thank Didi Egerton Warburton for her careful reading of the
­chapters, Cathy Humphrey for reading the final draft and Viswarajan
Pillay for his help with the bibliography. I thank Joerg Baten, Guilhem
Cassan, Latika Chaudhary, James Fenske, Kyoji Fukao, and Sun Go
for sharing their data and Tim Goodfellow for drawing the maps.
I thank Eric and Doreen Anderson and Robert and Cynthia Swanson
of Arc Indexing for doing the index of the book. I am ­grateful to the
CAGE Research Centre for financial support and to Michael Watson
at Cambridge University Press for his patience and helpful suggestions.
I thank an anonymous reader of the book draft for valuable comments.
My ­biggest debt is to James Fenske for reading the first draft and to
Steve Broadberry for many conversations and joint projects on the
­economic history of Asia and Europe. The errors are mine alone.

xiv
 Introduction

The economic history of India has been a contested field. The nationalist
and the imperialist historiography was useful to get us started in think-
ing about different aspects of colonization and economic development
in colonial and pre-colonial India. There have been important contri-
butions from a large number of historians and economists. Economic
historians Naoroji (1878) and Dutt (1906) made an economic argument
against British rule using the concept of drain of wealth from India and
the disproportionate influence of the imperial power in different spheres
of the economy. This was a product of the time and an effective politi-
cal weapon to make an economic case for independent economic policy
that would prioritize economic development of the country rather than
imperial interests. An imperialist view of colonial India in recent work
comes from Niall Ferguson in Empire: How Britain Made the Modern
World (2012). Ferguson sees British imperialism as playing a crucial
role in bringing modernization to the colonies. The idea of moderniza-
tion is defined as integration into world trade and financial markets and
building of modern infrastructure. Very little is said about growth in per
capita incomes and improvements in living standards. More recently,
there has been a revival of the nationalist approach in Shashi Tharoors’s
Inglorious Empire: What the British Did to India (2018); this narrative
contests the imperialist view. Without colonization, India would have
prospered. Without the destruction of traditional industries, India would
have become an industrial nation.
Neither Ferguson nor Tharoor use data as evidence. Neither say any-
thing concrete about the fiscal capacity and technological capabilities in
pre-colonial India and how to think about measuring living standards.
For Ferguson the benefits flowed from Britain to the colonies, and for
Tharoor there was a drain of resources from India to Britain.
Many of the conclusions from this literature have not stood up to
empirical scrutiny. For example, the magnitude of economic drain has
been debated. The economic impact of the railways has been shown
to be more beneficial than merely a transportation network that served

1
2 Introduction

imperial interests of trade. By the early twentieth century the network

criss-crossed the country and connected markets and towns. The claim
that colonial policy stopped industrialization does not square up with the
evidence from subsequent research. A large import substituting cotton
textile industry developed with Indian ownership. The interwar years
saw a diversification of the industrial sector under Indian entrepreneur-
ship and the entry of multinational corporations. Deindustrialization
in the nineteenth century is flagged up as evidence of impoverishment,
and specialization in agricultural exports is considered to be the cause
of underdevelopment. Yet Indian GDP per capita declined in the eigh-
teenth century when the textile trade prospered and stagnated in the
nineteenth century rather than declined as India became an agricultural
exporter. Data show that the main economic decline coincided with a
booming trade in traditional textile exports.
British rule impacted on the Indian economy in significant ways.
Without quantitative evidence it is difficult to understand which areas
of the economy became underdeveloped and which areas developed,
or which policies had a detrimental effect and which did not. There is
an overarching moral critique of occupation of one country by another.
This would not diminish in importance, should there be evidence of
economic prosperity. Political freedom is factored into measurement of
living standards today. By that yardstick, being a colony feeds into the
index of underdevelopment. There are examples of economic growth
under colonization, such as Malaysia in Asia and Senegal in Africa. A
moral critique would still make a case against colonization, whereas an
economic critique may not.
There is a rich literature using empirical evidence at the regional
level to illustrate the impact of colonization on regions, c­ ommunities,
and social groups. Among them are contributions by Sugata Bose,
Rajat Datta, Sumit Guha, Dharma Kumar, and David Ludden. There are
rich evidence-based narratives of industry in the work of Amiya Bagchi,
Morris David Morris, Rajat Ray, and Indrajit Ray. An ­evidence-based
approach to an economic history of India was adopted in the work of
historians of Mughal India such as Irfan Habib, Shireen Moosvi, and
Najaf Haidar, and in the work on the colonial economy by Dietmar
Rothermund, Tirthankar Roy, and B.R. Tomlinson. In the last twenty
years there has been a revival of interest in Indian economic his-
tory. Data digitization has made it easier to build large data sets and
researchers have used new granular data. New data, new sources, and
digitization has made it possible to think of new questions and provide
new perspectives.
 I.1 Data on Colonial India 3

This book brings together old and new research and offers a his-
torical perspective on how we can think of India’s economic develop-
ment. It aims to build a narrative based on the new empirical evidence
to understand the nature of economic development or a lack of it in
a large colonial economy, using concepts and theories from economics
and economic history. It aims to use the available empirical evidence to
understand the impact of British rule on the economy. It takes a long
view to understand the changes from the pre-colonial economy to colo-
nial rule and puts a timeline on what has come to be known as the Great
Divergence between Europe and Asia, with a focus on India. Finally, it
attempts to understand India’s post-independence development from
the perspective of an economic historian of colonial India. By taking a
long view, the book explores persistent effects of historical institutions as
well as policy-driven changes after independence in 1947.

I.1 Data on Colonial India

The East India Company and the colonial government produced detailed
records on different aspects of the economy. Evidence on exports and
imports from India, wages, and prices were documented carefully by
the East India Company. Regional surveys produced evidence on the
state of agriculture and industrial and service sector activities, occupa-
tion structure, and other aspects of living standards and quality of life.
These resources have documented wages paid to workers in different
occupations as well as prices of goods traded in the internal market and
the records of fiscal spending. This information is patchy. From the time
of Crown rule, we have more systematic data on population, produc-
tion, disease environment, government revenue, and expenditure. The
decennial censuses from 1872 made available district level data on pop-
ulation, occupations, civil condition, education, and other aspects of the
economy and society. District gazetteers and sectoral reports provide
more granular data. The reports of the Sanitary Commission provide
heath and demographic data. Agricultural censuses from 1891 recorded
acreage under different crops, livestock, and irrigation at the level of dis-
tricts. Yield per acre by crop was estimated for these districts. Investors
manuals, business directories, and reports of industrial associations pro-
vide information on firm ownership, capital, the number of workers, and
profits. Over the last two decades new research by economic historians
has analysed this data using rigorous statistical methods and has brought
new insights, some of which question existing views in the literature on
the colonization of India.

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 4 Introduction

Historical data can never be as good as contemporary empirical evi-

dence. Still, it is possible to compile the evidence available and evaluate
it statistically. This book is an attempt to look at the economic impact
of colonial rule through the lens of recorded empirical evidence. I use
data collected in my research on Indian living standards covering several
centuries.
The book presents empirical evidence, old and new, based on the agri-
cultural statistics from the nineteenth century and trade and production
statistics for industry to discuss deindustrialization in the nineteenth cen-
tury and the rise of modern industry. I have used primary sources of the
data and evidence from secondary sources for my own research to put
forward an evidence-based perspective. I also borrow from the research
of others over the last decades to understand different aspects of India’s
long run development.
In the following chapters I use insights from research based on the
empirical evidence to assess the response of economic agents to the
process of colonization, the role of institutions in creating unequal
­
access to resources, and the factors that shaped economic policy.
The approach will be to study how economic agents in different sec-
tors ­(farmers, labourers, entrepreneurs, and traders) responded to the
­changing ­environment of policy making. I evaluate the modernization
of the economy through investment in physical and social infrastructure
such as the railways, irrigation, and education, and the impact of inte-
gration into the global network of the British Empire. The book cov-
ers a long span of history from the time of Emperor Akbar to the reign
of the East India Company and the period of Crown rule and, finally,
Nehru’s vision of a new India and the policies of regulation and subse-
quent economic reforms in independent India. The choice of dates is
determined by the availability of data for long run comparisons. It ends
roughly in 2000 as the consequences of history become less relevant
given the m­ omentous changes in Indian e­ conomic policy and outcomes.
The chapters are o ­ rganized thematically and traces the historical origins
of different aspects of economic development.

I.2 Defining India over the Long Run

In this book, India is not the same unit over time. Mughal India covers
the boundaries of the Mughal Empire. British India includes the mod-
ern states of India, Pakistan, and Bangladesh. ‘India’ after 1947 refers to
only one country. Most historical discussions on economic change cover
the area now included in India, Pakistan, and Bangladesh. The two long-
lasting empires, the Mughal and the British, unified large parts of the

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 I.4 The Timeline of Empires 5

country under one political entity. The term ‘India’ will be used to refer
to the political entity at a given point in time. Therefore, the borders and
the area termed ‘India’ will not be the same as I move through centuries.
Mughal India, British India, and independent India will form the chang-
ing contexts and geographic boundaries.
The Indian subcontinent is diverse in geography, the people that
inhabit this region, the languages they speak, their religious practices,
and the cultural heritage they own. In political terms, neither the Mughal
nor the British Empire ruled over the entire region of today’s India.
Parts of Southern India remained outside the Mughal Empire and the
princely states in British India were ruled by local elites, remaining out-
side the political boundary of the British Empire. In the year 2000, India,
Pakistan, and Bangladesh were three separate countries. India after
independence lives the shared history of the region. An analysis of post-
independence economic changes in Pakistan and Bangladesh remains
outside the scope of this book.

I.3 Geography
Geographically, the region can be divided into four zones – the
Himalayas, the Indo-Gangetic Basin (the floodplains of the Ganges
and the Indus), the arid or semi-arid areas of north-west-centre and
south, including the Deccan Plateau, and the littoral (Gupta and
Roy 2017). The southern part of South Asia has a tropical climate,
while the northern part is more continental. The region depends on
the south-west and north-east monsoon rains, which provide water
for agriculture. Map I.1 also shows the regional variations in rainfall
and highlights the extensive dry regions in the north-west and on the
Deccan Plateau.

I.4 The Timeline of Empires

The Mughal Empire was established by Babur in 1526. The territory
expanded under the reign of Humayun (1530–1540, 1555–1556),
Akbar (1556–1605), Jahangir (1605–1627), Shah Jahan (1627–1658),
and Aurangzeb (1658–1707), when it reached the largest geographical
boundary (see Map I.2). After the death of Aurangzeb, the Empire began
to crumble. The eighteenth century brought wars and conflict over ter-
ritorial control, disrupting economic activity. The peak in prosperity in
this Empire was reached during the reign of Akbar.

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 6 Introduction

75° 90°

us CHINA

Ind
(AFGHANISTAN)

Lahore
)
N H
TA PUNJAB
I
30°
K IS M
A 30°
L A
( PA Y A
Delhi S
s G
RAJPUTANA

an
u

Agra ra
I N t
Ind

pu

ge
ma

s
Brah
BALUCHISTAN
D Gan g es
Karachi
HINDUSTAN I A
.
MTS BENGAL
HYA
VIND Calcutta
Surat ORISSA Mouths of
s
Dju Daman the Gange
Arabian Bombay Poona
AS Golconda
ATH
Sea MAR
DECCAN Bay of
Goa B I J A P U R
Bengal
15° 15°
Under 5
5 to 10
10 to 20 Madras
20 to 30
30 to 40 Indian Ocean
40 to 50 Cochin
50 to 75
Trincomalee
75 to 100
CE
YL

100 to 200 0 200 400 Kilometers

ON

Over 200
0 200 400 Miles
Mean Annual Rainfall (in)
75° 90°

Map I.1 Rainfall map of 1908

The European trading companies began to arrive in India in search

of spices and other exotic products. The Portuguese, British, Dutch,
French, and Danish monopoly trading companies entered into trading
contracts with the local rulers and set up trading posts in various parts
of the country. The trading posts dotted the western and eastern litto-
ral and various spots along the river Hooghly in Bengal. The companies
bought textiles in India and exported them to Europe and other markets.
In 1757, the ruler of Bengal was defeated by the English East India
Company and thus began the Company’s rule of Bengal. From a trader,
the Company transitioned into a fiscal consolidator and expanded its
reign to other regions of India. By the middle of the nineteenth cen-
tury, it looked more like a ruler than a trading firm. Map I.3 shows the
timeline of the conquest by the Company. In 1858, India came under

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 I.4 The Timeline of Empires 7

75° 90°

us CHINA

Ind
(AFGHANISTAN)

Lahore
)
A N H
ST
I
30° I PUNJAB M
30°
K A
L A
( PA Y A
Delhi S
s RAJPUTANA tra
u

Agra u

Ga
I N
Ind

ap

n
m
B ra h

ge
BALUCHISTAN
D

s
Gan g es
Karachi
HINDUSTAN I A
.
MTS BENGAL
HYA
VIND Calcutta
ORISSA
Surat Mouths of
s
Dju Daman the Gange
Bombay Poona
AS Golconda
ATH
MAR
Arabian DECCAN Bay of
Bengal
15°
Goa BIJAPUR 15°
Sea
Madras

Under Akbar,
1556–1605 Cochin Indian Ocean
Expansion under
Shah Jahan 1627–1658 Trincomalee
CE

Aurangzeb 1658–1707
YL
ON

0 200 400 Kilometers

0 200 400 Miles

75° 90°

Map I.2 Mughal India

Crown rule. The transition to Crown rule integrated India into the eco-
nomic project of the British Empire. The princely states were ruled by
local princes and coexisted with British India although they remained
outside its political control (see Map I.4).
The independence of India came at the cost of a partition of the coun-
try. The movement for independence had been led by the Congress
party under the leadership of Mohandas Gandhi, Jawaharlal Nehru, and
Vallabhbhai Patel. The Muslim League, formed in 1906, came to see a
separate state for the Muslims as their political goal. By the 1940s their
support had grown and the colonial government accepted the demand
for a two-state solution for independence.
The political boundaries of India and Pakistan were drawn in an arbi-
trary fashion. Cyril Radcliffe, a British barrister, was assigned the task

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 8 Introduction

75° 90°

us CHINA

Ind
Lahore
SIKHS H
I
M
30° A 30°
L A
Delhi Y A
S
s G NEPAL
du Agra tra

an
In

BHUTAN u
ap

ge
H

RAJPOOTANA OUDH
ND

s
m
I B ra h
N
SI

Ga n ges
M
Karachi
Cutch
AH
RA
D B E N G A L
TT I Calcutta
Gujarat
A A
ST
Surat
AT Mouths of
s
Dju Daman ES the Gange
Arabian Bombay Poona

RS
NIZAMS A
RC
Sea Golconda
DOMINIONS CI Bay of
Goa Bengal
15° (Portuguese) 15°

DOMINIONS
INDIA 1785
ATIC

OF Madras
British Dominions HYDER AH
Pondicherry
RN

Mahratta States (French)

Cochin
CA

Other Native States Cochin

(French) Travancore
Indian Ocean
Trincomalee
(Portuguese)
CE
YL
ON

0 200 400 Kilometers

0 200 400 Miles

75° 90°

Map I.3 Political conquest by the East India Company

of drawing the dividing line. This was his first visit to the country and
he had five weeks to do the job. On the western side the region of West
Pakistan and on the eastern side East Pakistan were carved out to form
the new state of Pakistan. British India was partitioned on lines of reli-
gion and its end was one of the bloodiest episodes in the history of the
subcontinent. Map I.5 shows the partitioned state of British India and
the presence of the two largest religious groups, Hindu and Muslim. In
1971, East Pakistan became the independent country of Bangladesh.
At the time of independence, the numerous princely states became a
part of India. In 1952, the newly independent state of India became a
republic.
Jawaharlal Nehru, the first Prime Minister, adopted policies that were
very different from the path followed by the colonial government of the

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 I.4 The Timeline of Empires 9

75° 90°

us

Ind
AFGHANISTAN KASHMIR

Lahore
TIBET

PUNJAB
30° 30°
s
BALUCHISTA du Delhi
In
AGENCY NEPAL ra
Agra ut
k a l a t RAJ P UT ANA BHUTAN ap
Jaipur UNIT E D hm
Sind AG E NCY P RO V INCE S A S S A M Br a
BO Ga n ges
MB
Karachi INDIA AGE
AY
R AL NC BIHAR BENGAL UPPER
NT Y B U R MA
CE Calcutta

Surat CE NT RAL ORISSA

Mouths of
s
Dju P RO V INCE S the Gange
PRE

Daman
Y
Arabian Bombay
N
C LO WE R
SID

E B U R MA
Poona HYDERABAD ID
Sea ES
ENC

Golconda PR Bay of
Goa Bengal
Y

15° 15°
S
MADRA

MYSORE Madras
Political Divisions of the
INDIAN EMPIRE Pondicherry
British India
Territories administered Cochin
by the Government of India Indian Ocean
Trincomalee
Native States and Territories
CE
YL

0 200 400 Kilometers

ON

0 200 400 Miles

75° 90°

Map I.4 British India

British Empire. Colonial India had been a part of a globally connected

economy. India after independence became one of the most inward-
looking economies in the world. The Nehruvian policies of state that
directed development have come under much criticism. However, any
evaluation of the policies after independence without considering the
policies under colonization and their implication for the economy ignore
the context in which the post-independence policies were made and how
their impact should be evaluated. By taking a historical perspective, this
book will look at economic outcomes before and after 1947 and reflect
on the continuity and departure from the past. The book will end with a
comparison with the East Asian economies of South Korea and Taiwan
that gained independence from Japanese colonization around the same

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 10 Introduction

75° 90°
RUSSIA

us CHINA

Ind
KASHMIR

AFGHANISTAN
Lahore TIBET
vi Amritsar
Multan Ra
30° 30°
N Patiala
TA lej
IS us Su t Delhi
K NEPAL
PA Ind ra
IRAN ut
BHUTAN ap
Jaipur Lucknow Br a hm
Ga n ges
Patna E.
PAKISTAN
Karachi
Bhopal Dacca
Ahmedabad
Chittagong
Narmada Mah Calcutta
a
Mouths of

na
T a pi Nagpur

di
s BURMA
the Gange
Bombay G o davari
Arabian
Bay of
Sea Bengal
15° Goa Penn 15°
ar

Madras
Bangalore
La

Pondicherry
cca

Partition of India 1947

div

Palk Strait
Indian Ocean
eI

Muslim majority
sla

Hindu majority
nd

SRI LANKA
s

Gulf
0 200 400 Kilometers of
Mannar
0 200 400 Miles

75° 90°

Map I.5 Partition of India

time in order to understand the historical differences that may explain

their differences in economic performance as independent countries.

I.5 A Narrative of Colonial Underdevelopment

In this book, I have used empirical evidence to understand the economic
outcomes in pre-colonial and colonial India. My analysis differs from
much of the existing literature in the following aspects. First, I argue that
the role attributed to colonial policy on the decline of traditional indus-
tries and lack of development of a modern industrial capability need
rethinking. Second, the stagnation in colonial India was not because
of developments in industry but because of the stagnation of the main

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 I.5 A Narrative of Colonial Underdevelopment 11

sector of the economy, which was agriculture. The provision of agricul-

tural infrastructure was low and resulted in declining yield per acre in
many parts of the country. Third, the emphasis on secondary and ter-
tiary education rather than on an extension of primary education had
consequences for the development of human capital and provided an
advantage to the service sector, but deprived industry the benefit of a
literate workforce.
The overall narrative of an agricultural decline is consistent with the
findings that GDP per capita began to decline from the middle of the
seventeenth century from a highpoint in 1600. The decline in Mughal
India may be explained by falling yield per acre in agriculture as mar-
ginal land came into cultivation. The decline coincided with the rising
trade in traditional textiles. The colonial government did not do enough
to stem the decline in agriculture output. The changes in GDP per cap-
ita track changes in per capita agricultural output in the nineteenth
century. Industry, on the other hand, did not see a systematic decline
or stagnation after 1850. Modern industries in jute, tea, and cotton
began to develop, assisted by the colonial state in the case of export
industries but despite the colonial policies towards import substituting
industries. After the First World War, the attitude of the colonial gov-
ernment towards import substituting industries began to change and
several new industries emerged in the interwar years. A comparison
with the South Korea and Taiwan emerging from Japanese colonization
at the same time points to the differences in policies towards agricul-
ture and education to understand where India lagged behind and what
might explain the different outcomes in the two East Asian economies
and India after 1950.
Chapter 1 provides a long view of the living standards and economic
growth from the Mughal Empire to the end of British rule, followed by
economic changes in independent India. Living standards are measured
in terms of income categories such as average wages and estimates of per
capita incomes. What was the effect of colonization on these indicators?
How prosperous was Mughal India? Does the picture of the opulence of
the elites in pre-colonial times and the vibrancy of urban centres repre-
sent how the average Indian lived? I show that Indian per capita GDP
was 60 per cent of British level in 1600. But Indian per capita GDP
began to decline from the seventeenth century, well before the conquest
of Bengal by the East India Company. It stabilized in the nineteenth cen-
tury and even grew a little in the latter half. The first half of the twentieth
century showed stagnation and increasing divergence with Britain.
How did the economy change after independence? The policies of
Nehru’s government are analysed in the context of a failure of colonial

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 12 Introduction

policies to bring about modern economic growth and in the context of

the theories of underdevelopment put forward in postcolonial settings
in different parts of the world. The chapter argues that the economy
moved from stagnation to positive economic growth after independence.
Although the rate of growth was low compared to recent decades, it
marked a structural break with its historical trend and set India on the
path of modern economic growth.
Chapter 2 focuses on the largest sector of the economy, agriculture.
The rural economy produced most of the output in Mughal India and
British India and 85 per cent of the population lived in rural com-
munities. How did this sector evolve over the centuries as population
increased and less productive land came under cultivation? The chapter
considers the successes and failures of agricultural policies before and
after 1947. The economic history of India has a rich narrative of regions,
of introduction of new institutions, and integration of the cultivators into
commercial exchange of food and raw material at the regional level. This
chapter brings together an overall narrative of the regions and explains
why some regions prospered while others declined. It sees the role of
infrastructure as an important part of this discussion, that is, the impact
of the railways and irrigation. While British investment in irrigation and
new technology in agriculture was inadequate and can explain agricul-
tural stagnation in different parts of the country, the railways played an
important role in integrating markets. The chapter ends with a discus-
sion of the building of agricultural infrastructure after independence and
the Green Revolution of the 1960s and it importance in economic growth
and development.
Chapter 3 is about industry. In the discussion of colonization, the
decline of the traditional textile industry is seen as a major cause of eco-
nomic decline under colonial rule. This chapter takes a different view.
The world textile market underwent significant changes with the indus-
trial revolution in Britain and new technology in the production of cot-
ton textiles. The effect on the traditional textile industry in India was
devastating. However, this industry was a small part of the Indian econ-
omy. So, its rise in the eighteenth century and decline in the nineteenth
century had significant effects in some regions, but its effect was negli-
gible on the average living standards measured by GDP per capita. A
modern industrial sector developed from the middle of the nineteenth
century, which was more productive than the traditional sector and it
grew rapidly. In 1947, the shares of the modern and the traditional sec-
tors were roughly the same. Entrepreneurship and capital for the modern
import substituting cotton textile industry came from the Indian trading
communities. British investment in industry was initially in the export

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 I.5 A Narrative of Colonial Underdevelopment 13

sectors, such as tea and jute, and later in the interwar period in modern
import substituting new industries. I have argued in this chapter that
lack of industrialization was not the major consequence of colonial pol-
icy. This sector saw a reasonable growth in productivity and size and in
1945 did not look very different from the industrial sectors in East Asian
countries. Most of the industrial production was in consumer goods.
The intermediate and capital goods production was limited.
After 1947, India adopted a strategy of intermediate and capital
goods-led industrialization. The process of industrialization was led by
the public sector with highly interventionist policies towards trade and
industrial location. The role of the private sector was constrained. Yet,
the industrial conglomerates owned by family-based enterprises of the
Tatas and the Birlas and other industrial houses prospered and domi-
nated the industrial sector in the second half of the twentieth century.
Several of these groups had come into industry in the colonial period and
grew in size and shape by venturing into new sectors.
Chapter 4 discusses the origins of India’s service sector advantage.
Although modern industries developed in the colonial period and the
policy of public sector-led industrialization after independence led to the
development of industries producing consumer, capital, and interme-
diate goods, the share of the sector in employment has remained low.
Industry in India did not play the same role in structural transformation
as it did in the context of European industrializers and in China today.
The service sector in India has been the most productive sector histori-
cally. Labour productivity in services in the early twentieth century was
higher than in industry. Labour productivity in industry grew faster until
the 1980s and thereafter the service sector has led productivity growth.
The service sector today has a concentration of workers with second-
ary and tertiary education, but this was also the case historically. The
caste level literacy data from the colonial censuses shows high literacy
in the trading castes and other upper castes, who were typically engaged
in ­service sector occupations including medical and financial services
and the civil service. The service sector-led growth in India today has
­historical ­origins. The education policies in colonial India prioritized
­secondary and tertiary education for a few at the cost of universal primary
education. This continued after independence. Only in recent decades
has expansion of primary education become a priority. India continues
to spend a large share of the education budget on higher education.
No discussion of growth and development is complete without under-
standing the distributional consequences. Chapter 5 focuses on four dif-
ferent aspects of economic and social inequality. The first is regional
inequality. There were historical differences in levels of economic

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 14 Introduction

development across provinces. The Bombay Presidency was one of

the richest parts of colonial India and had been the centre of activities
for several Indian trading communities involved in the Indian Ocean
trade and China trade. It was also the region where the first modern
cotton textile industry developed. Maharashtra and Gujarat today are
among the richest provinces in India. Punjab saw investment in irriga-
tion in colonial India and agricultural growth. It was the first region of
the Green Revolution and today it ranks among the rich provinces. The
poorer regions in colonial India, such as the United Provinces and the
Central Provinces, rank among the poorer regions today. The regional
differences in colonial India persist in many different contexts.
The second aspect is the trend in income inequality from the early
twentieth century. Income inequality was high in the 1930s and 1940s
and the first decades after independence saw a decline in inequality fol-
lowing the policies of public sector-led development. Since the economic
reforms of 1980, income inequality has increased but it is not as high as
in the colonial period. Unlike in many other colonies, Indians always had
a substantial share in top incomes reflecting the economic prosperity of
urban communities of traders and industrialists.
Third, the chapter discusses caste inequality by looking at indicators
in literacy and heights in colonial India and changes in outcomes in edu-
cation and jobs after the introduction of affirmative action for the lowest
castes after independence. Upper castes were healthier and more literate
in colonial India. There is continuity in caste inequality in many dimen-
sions, but also changes. Lower castes have better access to education
and jobs as a consequence of policies of affirmative action. However, big
differences in economic and social outcomes remain.
Finally, the chapter looks at an aspect of gender inequality that is spe-
cific to India: the preference for sons. I discuss this by using the standard
measure from the literature: missing women in the population, measured
by sex ratio. There was a regional variation in son preference in colonial
India. Biased sex ratios and female deficit was more prevalent in the
north-west compared to the south and the east. The difference emerged
in the early years of life, but was most pronounced in adolescence. I
discuss the persistence of regional variation in sex ratio. Regions of son
preference in the early twentieth century continue to have male biased
sex ratios today. However, the share of missing women by age groups
has shown some changes over the century. Maternal mortality in adoles-
cence has declined, but there are more missing girls at birth due to the
availability of sex-selective abortion.
Chapter 6 discusses the policies of colonization in India in a compar-
ative perspective with Korea and Taiwan under Japanese rule. The slow

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 I.5 A Narrative of Colonial Underdevelopment 15

growth in India after independence has been compared with the high
growth in East Asia. This comparison rarely looks at the ­historical ­context,
with the exception of Kohli (1994). In this chapter, I take a ­historical
approach and consider the differences in policies of ­colonization. At
the time of independence, the share of industry in total GDP was not
very different in the three countries. Modern industries had developed
in India, Korea, and Taiwan during the colonial period. The two big
differences in colonial policies were with respect to a­ griculture and edu-
cation. First, Japan imported essential food grains from the colonies,
which prompted investment in improvements in ­agriculture to raise pro-
ductivity. A large proportion of land came under irrigation in both col-
onies, enabling the introduction of new varieties of seeds. The British
government in India did relatively little to raise agricultural ­productivity.
Second, Japan as a colonizer expanded primary education. A large
­proportion of industrial workers became literate. In India, as a result of
the emphasis on higher education, it was mainly the service sector occu-
pations that benefitted in terms of human capital. The chapter argues
that the history of c­ olonization may have contributed to the divergent
paths of the two regions.
In this book on Indian economic history, I offer a long run perspective
on India’s economic development. I analyse India’s development path,
bringing in data as evidence and offering a comparative perspective. The
book discusses the timing of the Great Divergence between India and
Britain and the impact of colonial policies on measures of economic
development. The book also offers a comparative perspective with East
Asia under a different colonizer and different policies. The first thirty
years of slow growth in independent India is assessed with a historical
perspective.

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 1 The Decline and the Rise
of the Indian Economy

In the year of independence, after 200 years of British rule, India was one
of the poorest countries in the world. India was poor not just in compari-
son to industrialized countries; it was poor even by the standards of other
developing countries. Figure 1.1 shows that Latin American countries
were richer than countries in Asia and Africa. Latin American coun-
tries, such as Brazil, Argentina, and Mexico, had gained independence
in the nineteenth century and therefore had designed their own policies
for a century. Within Asia, Indian per capita GDP in 1990 International
Geary-Khamis dollars was 619 in 1950, compared to 817 in Indonesia,
854 in South Korea, 916 in Taiwan, 1559 in Malaysia, and 1253 in Sri
Lanka (see Figure 1.1). Indian GDP per capita was comparable to sev-
eral countries in Africa in 1950. These countries were among the poorest
in the world.
Figure 1.2 shows changes in Asian and Latin American countries
between 1910 and 1950. The independent countries in Latin America
grew faster, whereas the colonies grew more slowly. In particular India
and Indonesia show stagnation.
Colonial rule began with the conquest of Bengal by the East Indian
Company in 1757. India formally became a part of the British Empire in
1858 with a transition to Crown rule. Crown rule lasted until 1947. Did
the long years of colonial rule impoverish India? Was India prosperous
before the conquest by the East India Company? How can we measure
prosperity in the seventeenth and eighteenth centuries?
Urbanization is often used as a measure of economic development the
further we go back in history. The agricultural surplus needed to sustain
cities is a measure of development. City size, city growth, and share of
the urban population in a country have been used by economic histori-
ans to measure development in the context of Europe, China, and other
parts of the world. Historians have suggested that India was more urban
in the eighteenth century compared to the end of the nineteenth century
(Roy 2013, chap. 6). The share of the urban population in India during
Akbar’s reign has been estimated at 15 per cent (Habib 1982a). In 1901,
16

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 The Decline and the Rise of the Indian Economy 17

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

0
Indonesia

Centr. Afr. Rep.

Philippines

Kenya

Nigeria

Peru
Burundi
Taiwan

Niger

Tanzania

Venezuela
Botswana
Burkina Faso

Uruguay
Sri Lanka

Angola

Congo ‘Brazzaville’
India

Algeria

Benin

Chad
Malaysia

Cape Verde
S. Korea

Singapore

Cameroon

Argentina
Colombia
Figure 1.1 Per capita GDP in India and other developing countries
(1950) (1990 International Geary-Khamis dollars)
Source: Maddison Project database

6,000

5,000
COLONIES INDEPENDENT COUNTRIES

4,000

3,000

2,000

1,000

0
India Indonesia S. Korea Taiwan Malaysia Argentina Brazil Chile Mexico

1910 1950

Figure 1.2 Changes in GDP per capita in Asia and Latin America
(1910–1950) (1990 International Geary-Khamis dollars)
Source: Maddison Project database

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 18 The Decline and the Rise of the Indian Economy

the urbanization rate was 10 per cent (Visaria and Visaria 1983). The
sixteenth-century urbanization rate was not attained again until after
independence. Did the decline of the urban economy suggest a decline
in living standards during colonial rule?
In this chapter I explore another measure of economic development,
the changes in GDP per capita. Estimates of GDP per capita for India
going back to 1600 are available in the work of Broadberry et al. (2015).
They allow a comparison of the average living standard in India across
time starting from the reign of Akbar until the end of the nineteenth cen-
tury. They also make possible comparison with other countries. After the
industrial revolution, Britain was the most industrialized economy and
also among the most urbanized. This chapter will look at Indian living
standard in comparison with that in Britain to understand the timing of
the economic divergence between India and Britain. Was the standard
of living in Britain before the industrial revolution the same as in India?
Did India and Britain have comparable average incomes before coloniza-
tion? Due to data constraints, it is not possible to use some of the other
indicators of economic development, such as life expectancy or literacy,
before the late nineteenth century. I will focus on changes in real wages
of unskilled urban workers as evidence as this is more easily available and
provide evidence on newly estimated GDP per capita to understand the
changes in the standard of living in India over four centuries.
I start with qualitative accounts of living conditions followed by quanti-
tative evidence on real wages and estimates of per capita GDP. I evaluate
the possible impact of colonial rule in economic decline and stagnation
and low per capita GDP. The final section of the chapter offers a his-
torical perspective of the changes in Indian per capita GDP after inde-
pendence evaluated in the context of available evidence over 400 years.

1.1 What Do We Know: Qualitative and

Quantitative Evidence?
The travelogues of Europeans in India in the sixteenth and seventeenth
centuries often described the great wealth and opulence of the citizens,
but this perspective reflected their narrow exposure to the ruling elites.
The ruling elites enjoyed a luxurious lifestyle, enjoying high-quality food,
clothing, and ornaments, and living in high-quality housing. This was
a great contrast to the rudimentary lifestyle of the common men and
women (Chandra 1982). Moreland, in his book India at the Death of
Akbar (1923), described the luxurious lifestyles of the nobility, who were
patrons of the arts and supported scholars, poets, physicians, painters,
musicians, and dancers and employed many servants. The wealthier

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 1.1 Qualitative and Quantitative Evidence? 19

among the middle classes included merchants, money-lenders, and other

professional groups who tried to imitate the lifestyles of the nobility. The
middle class was small and the merchants that European travellers had
contact with enjoyed a comfortable lifestyle (Moreland 1923).
At the same time, most travel accounts of the places outside the urban
centres in Mughal India and the Deccan noted that the majority of
Indians lived in poverty (Chandra 1982; Fukazawa 1982). The labour-
ing classes lived in mud huts with thatched roofs, consumed inferior
grains, had minimal clothing, and most did not use footwear. Wheat
was not widely consumed, even in the wheat producing areas, and infe-
rior grains such as jowar and bajra were grown everywhere (Moreland
1923, pp. 197–203). Pelsaert, a representative of the Dutch East India
Company who was in Agra in the early seventeenth century, commented
on the contrast between the extravagant luxury of the ruling classes and
the poverty of the masses (Thatcher 1926). Francis Buchanan (1807), an
employee of the East India Company, conducted surveys in the Bengal
and Mysore regions and documented the economic conditions in the
first decades of the nineteenth century. Buchanan claimed that, although
weavers enjoyed a comfortable lifestyle, the majority of cultivators lived
in poverty. Moreland (1923) confirms that the poverty of the majority
was largely unchanged in the early twentieth century.
An assessment of Indian lifestyle by Europeans based on the type of
clothing, footwear, and furniture used in their homes reflected the cul-
tural values of the writers and is not an objective assessment. However,
information on the type of food consumed and the quality of dwellings
provides valuable information to make comparisons possible, despite
the cultural prejudice that might have characterized the comments by
European travellers. By distinguishing between the lifestyles of the elites
and those of the common men and women, these accounts documented
the inequality between the rich and the poor.
There exist other sources that come from local observers, but these
are relatively rare. Abul Fazl, a member of Akbar’s court who documen-
ted the economic conditions during Akbar’s reign, commented on the
basic lifestyle of the common people (Chandra 1982). Analysing temple
records in Southern India, Ramaswamy (1985) confirms a similar pic-
ture. There was a prosperous nobility, a small middle class of weavers,
and a populous group of rural poor and low-caste artisans. The rich and
the middle social classes consumed rice, but others could only afford
inferior grain, such as ragi (Ramaswamy 1985, pp. 99–100).
A different view comes from the work of Parthasarathi (1998, 2011) and
Sivramkrishna (2009) using evidence from Southern India. Parthasarathi
(1998) compares the living standard of weavers in South India with that

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 20 The Decline and the Rise of the Indian Economy

of the British weavers in the mid-eighteenth century. Using wages of

weavers documented by the East India Company, Parthasarathi finds
that, in real terms, they were similar to that of British weavers. More
recently, Sivramkrishna (2009) used evidence from Buchanan’s survey
of Mysore to calculate living standards in terms of the consumption of
a cheaper grain, ragi, rather than rice. This comparison suggests that
wages in many occupations reflect living standards well above subsis-
tence at the beginning of the nineteenth century, although not at the
level of parity with English weavers that Parthasarathi found.
Another indicator of economic development that historians can use
in the absence of other systematic data is the relative price of factors of
production. Wages as the price of labour indicate the relative abundance
or scarcity of labour, and similarly rental cost of capital indicates its scar-
city or abundance. Typically, low wages are correlated with lower indi-
cators of economic development. Pelsaert (1925) and Bernier (1916)
refer to the scarcity of capital and cheapness of labour (Habib 1969).
In all sectors, from palaces and royal courts to services for the nobility,
foreigners noted the excess employment relative to Europe, pointing to
labour abundance. While European writers spoke of the high quality and
skills of the craftsmen, they noted the rudimentary nature of the tech-
nology used and the sparing use of metal, indicating that the mining and
engineering sectors were underdeveloped. Pelsaert noted with respect
to crafts in Agra: ‘For a job which one man would do in Holland, here
it passes through four men’s hands before it is finished’ (Habib 1969).
Bayly’s (1983) description of a thriving market economy in North
India during the eighteenth century leaves an impression of a prosper-
ous, mainly urban, commercial sector but says little about the living stan-
dards of the vast majority of the population, even in the urban centres.
Bayly’s rich account of the vibrancy of markets does not quantify the size
of the commercial sector nor its share in GDP and therefore it cannot
say much about the representativeness of this sector and how the average
Indian lived. While cultural and climatic conditions can explain some of
the consumption differences between India and Europe, most qualitative
accounts suggest that the average Indian lived in poverty. The image of
the prosperous weaver, or the rich nobility, or a vibrant commercial sec-
tor did not represent the living standard of the majority of Indians.

1.2 Quantitative Measures of Living Standards

The first accounts using quantitative indicators of living standards come
from the work of Shireen Moosvi (1973, 1977, 2015) and Najaf Haider
(2004) for North India, and Vijaya Ramaswamy (1985) and Brennig

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 1.2 Quantitative Measures of Living Standards 21

(1986) for South India. In their research spanning decades, Irfan Habib
and Shireen Moosvi methodically documented the economic markers in
Mughal India, from wages, prices, and interest rates to agricultural pro-
ductivity and fiscal capacity. The first step for building time series evi-
dence can be found in Mukherjee’s (1967) estimates of real wages from
1600. The book puts together data on wages and prices from different
parts of the country, so that real wages can be calculated at the regional
level. Broadberry and Gupta (2006) took a further step to construct sil-
ver and grain wages for North and South India, using systematic evi-
dence of wages and prices from different sources for all regions of India.
This made it possible to compare long-run development of the Indian
economy with that of other countries.
The starting point is 1595, in India under Akbar. Wages from differ-
ent occupations were documented in Abul Fazl (1595) A’̄ ı n̄ –i-Akbarı ̄
and can be classified into skilled and unskilled wages. This is a refer-
ence point for real wage comparisons over the next centuries. Desai
(1972) claimed that, at best, the average standard of living in 1961
was no higher than in 1595 in Mughal India. The average wage during
Akbar’s reign would buy fewer industrial goods, such as clothing, but it
could buy more food, given the relative prices between agriculture and
industry in the sixteenth century. The average wage in 1961 could buy
less food but more cloth than the average wage in 1595. (Desai, 1972)
while this comparison was useful in assessing Indian living standards
soon after independence with pre-colonial Mughal India, it did not say
anything about the intervening centuries. When did the decline begin?
Did colonization contribute to the real wage decline and stagnation over
the centuries or did the decline begin before the conquest of Bengal by
the East India Company?
Mukherjee (1967) found a downward trend in real wages during the
seventeenth and eighteenth centuries, before recovering during the twen-
tieth century. Based on evidence from 1595 and other archival and sec-
ondary sources for the seventeenth, eighteenth, and nineteenth centuries,
Broadberry and Gupta (2006) constructed a wage series over this period
for northern, western, and southern India. Using prices of the staple
foods, such as rice or wheat, depending on the region, and a represen-
tative selection of wages from different regions for unskilled and skilled
workers, they constructed a series for money wages and grain wages.
Money wages show the nominal value of wage and the grain wage com-
putes the purchasing power of the wage in terms of food grains. This data
can be used to establish not only the trend in living standards over the
centuries, but also what Indian living standards might have looked like
relative to the prosperous societies of Northwest Europe (Table 1.1).

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 22 The Decline and the Rise of the Indian Economy

1.3 Silver Wage and Grain Wage

The simplest way to think of grain wage is how much food the
money wage of a typical unskilled worker would buy. A similar cal-
culation can be made for a typical skilled worker. The grain wage of
an unskilled worker proxies the lowest wages in the economy and is
therefore a good measure of the average living standard. The differ-
ence between wages of skilled and unskilled workers is also indicative
of the skill premia in the economy and the relative shortage of skilled
workers and therefore the level of economic development measured
in terms of human capital.
The established practice in the literature for measuring living stan-
dards in Europe across time and place has been to gather data on money
wages of unskilled and skilled workers and convert these to a common
unit of grams of silver. This gives us the silver wage. Converting money
wages in various currencies to a silver standard makes international com-
parisons possible. The silver wage is then divided by the silver price of
the common local grain. This would give us the grain wage, a crude but
common measure of the standard of living. If prices of non-food items in
consumption are not available, then measuring the purchasing power of
wage in terms of grain price is a reasonable approximation of real wage
in subsistence economies. The closer an economy is to subsistence, the
more accurate is the grain wage as a measure of living standards, since
a large part of the income is spent on basic foods for survival. The more
industrial an economy, the more diversified is the consumption basket.
It contains more processed foods and industrial products. If we do not
consider a suitable consumption basket, this would bias the grain wage.
However, during the period of the comparison in this chapter, most
economies were close to subsistence and therefore grain wage is a good
approximation of real wage. This method has been applied to India by
Broadberry and Gupta (2006).
Part A of Table 1.1 shows silver wages and grain wages in northern
and western India, drawing largely on sources for Agra and Surat. Note
that these are urban wages and there is little information on rural wages.
Grain wages in northern and western India are obtained by dividing the
silver wages by the price of wheat, the main grain produced in the region,
expressed in terms of silver. Although the silver wages rose between 1595
and 1874, grain wages declined in northern and western India as money
wages failed to keep up with rising grain prices.
Data for southern India is in part B of Table 1.1. The wage and price
data are largely from the area around Madras and in many cases are the
wages of skilled and unskilled workers in textile weaving. Money wage

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 1.3 Silver Wage and Grain Wage 23

Table 1.1 Indian silver and grain wages (1595–1874)

(A) Northern and western India

Silver wage Wheat grain wage Rice grain wage

(grams per day) (kg per day) (kg per day)

Unskilled Skilled Unskilled Skilled Unskilled Skilled

1595 0.67 1.62 5.2 12.6 3.1 7.5

1616 0.86 3.0 2.4
1623 1.08 3.8 2.9
1637 1.08 2.37 3.8 8.3 2.9 6.5
1640 1.29 4.5 3.5
1690 1.40 4.3
1874 1.79 5.27 2.5 7.5

(B) Southern India

Silver wage Rice grain wage

(grams per day) (kg per day)

Unskilled Skilled Unskilled Skilled

1610–13 1.15 5.7

1600–50 1.15 3.2
1680 1.44 2.44 3.9 6.9
1741–50 1.49 2.1
1750 (3.02)* (7.56)* (4.2)* (10.5)*
1779 0.86 1.1
1790 1.44 1.8

Note: * These figures come from Parthasarathi (1998) and are outliers compared to the
rest of the series. These wages may have been isolated cases of high-skilled weavers
Source: Broadberry and Gupta (2006, p. 14)

rates here are available in pagoda units, a gold coin, and are converted to
silver rupees using East India Company’s standard rates from Chaudhuri
(1978). Silver wages for Southern India are then converted to grain
wages using the price of rice, the main grain consumed in the region, as
the deflator. Overall, the levels and trends of silver and grain wages in
Southern India fit well with the levels and trends in the North, except
in 1750. As explained in the note Figure 1.1, these particular wages are
outliers.
To make any normative statement about the standard of living, we
need to have a measure of the subsistence level. Brennig (1986) argues
that subsistence consumption for a household of six was 3.1 kg of rice

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 24 The Decline and the Rise of the Indian Economy

Table 1.2 An England–India comparison of the daily wages of unskilled

labourers (1550–1849)

(A) Silver wages (grams of silver per day)

Date Southern England India Indian wage as a % of English wage

1550–99 3.4 0.7 21

1600–49 4.1 1.1 27
1650–99 5.6 1.4 25
1700–49 7.0 1.5 21
1750–99 8.3 1.2 14
1800–49 14.6 1.8 12

(B) Grain wages (kilograms of grain per day)

India

England
(rice, on wheat Indian wage as a % of
Date (wheat) (wheat) equivalent basis) English wage

1550–99 6.3 5.2 83

1600–49 4.0 3.8 95
1650–99 5.4 4.3 80
1700–49 8.0 3.2 40
1750–99 7.0 2.3 33
1800–49 8.6 2.5 29

Source: Broadberry and Gupta (2006, tables 5 and 6)

per day. The wheat/rice ratio of calories per lb gives the calorie equiva-
lence of 4.7 kg of wheat per day for a family of six (Parthasarathi 1998,
p. 83). On this basis, grain wages were always above subsistence for
skilled workers but fell below the subsistence level for unskilled work-
ers during the seventeenth century. This raises the question: how did
the families of unskilled labourers survive? The evidence suggests that,
although we use the price of rice and wheat as the deflator, poorer fam-
ilies tended to consume mainly cheaper grains such as ragi, as discussed
by Sivramkrishna (2009). Rice and wheat prices are used because the
market price of these goods is recorded more systematically. Therefore,
the tables capture the declining trend in grain wage rather than sug-
gesting that people lived below the subsistence level.
Table 1.2 provides a comparison of silver and grain wages for unskilled
labourers in England and India. Part A shows that Indian silver wages for
unskilled workers were little more than one-fifth of the English level in

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 1.4 Real Consumption Wages and Welfare Ratios 25

the late sixteenth century and fell to just over one-seventh of the English
level during the eighteenth century. Part B of Table 1.2, the grain wage,
shows that India remained closer to the English level until the end of
the seventeenth century. The data indicates a sharp divergence during
the eighteenth century, partly due to a rise in the English grain wage,
and partly due to a decline in the Indian grain wage. Table 1.1 shows
the decline in Indian living standards, from a high point in 1595 for
northern India and in 1610 for Southern India. Table 1.2 illustrates the
timing of the Great Divergence. The grain wage declined from 80 to 95
per cent of the British wage to less than 30 per cent by the middle of the
­nineteenth century. The table also shows that the decline began well
before colonization.
I noted that grain wage is a crude approximation of living standards
and therefore has two limitations. As stated before, it is more accu-
rate at low levels of economic development when grain accounts for a
very large share of consumption. Another concern is that grain wage
is calculated mainly with urban wages and prices and gives a biased
view for economies that are agricultural. In the following section I
will discuss the refinements that have been introduced in estimating
real wages.

1.4 Real Consumption Wages and Welfare Ratios

The first step towards a different measure of consumption is to intro-
duce a cloth wage. The simplest consumption basket consists of grain
and cloth. Historical prices of cloth and grain are more easily available
than for many other goods. The cloth wage is constructed by system-
atically collecting evidence on the price of cotton cloth in India from
the records of the East India Company for the period before 1833
and from Parliamentary Papers for subsequent years (Broadberry and
Gupta 2015). The cloth wage represents the amount of cloth the silver
wage would buy and indicates that changes in the relative price of cloth
and grain that can affect consumption of cloth. A basic subsistence
basket includes both grain and cloth and therefore a weighted average
of the grain wage and the cloth wage would be a better measure of a
real consumption wage. Consumers’ budgets during this period (Allen
2007; Buchanan 1807) typically shows that consumers spent two-thirds
on grain. The typical consumption basket is more diversified, but a con-
sumption wage using basic shares of grain and cloth is a good approxi-
mation of the real wage when prices of all commodities are not available
systematically.

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 26 The Decline and the Rise of the Indian Economy

250.0

200.0
Wage 1871 = 100

150.0

100.0

50.0

0.0
1600 1650 1700 1750 1801 1811 1821 1831 1841 1851 1861 1871

Grain wage Cloth wage Consumption wage

Figure 1.3 Grain wage, cloth wage, and consumption wage (1600–
1871): 1871=100
Source: Broadberry and Gupta (2015, table 2.3)

Figure 1.3 presents these different measures of living standards:

the grain wage, the cloth wage and the real consumption wage using
a weighted average of grain and cloth. The cloth wage started at a
lower level, did not change much during the seventeenth and eigh-
teenth centuries, and increased substantially during the nineteenth
century. This reflects the change in the price of cloth relative to the
price of grain. The turning point came in 1851 with the arrival of
cheaper, machine-made cloth from Britain. Cloth consumption per
capita increased from the second half of the nineteenth century. This
is in line with the evidence from Desai (1972) a century later that the
average wage in 1961 could have bought less food but more cloth than
the average wage in 1595. As Figure 1.3 shows, the grain wage in 1871
was half of what it was in 1595, the cloth wage rose, and the real con-
sumption wage declined (although less than the grain wage) and rose
in the nineteenth century.
What did the actual consumption basket of an unskilled worker in the
seventeenth century look like? Allen (2007) constructed a consumption
basket for northern India and Bengal that included a variety of food
items such as the basic grain, usually rice or millet, and other comparable
foods using the items that were common in a basic European basket of
this period, and non-food, such as cloth.

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 1.4 Real Consumption Wages and Welfare Ratios 27

Table 1.3 Allen’s bare-bones consumption basket for India

Rice-based consumption Millet-based consumption

Quantity Nutrition Quantity Nutrition

per year per person per year per person

The basket Kilogram Calories Protein Kilogram Calories Protein

Rice 164 1627 34

Millet 209 1731 63
Beans 20 199 11 10 100 5
Meat 3 21 1 3 21 1
Ghi 3 72 0 3 72 0
Sugar 2 21 0 2 21 0
Cotton cloth 3 metres 3 metres
Total 1940 46 1945 69

Source: Allen (2007)

Allen (2007) went on to construct welfare ratios, defined as the number

of consumption baskets that can be purchased with the average annual
earnings of a wage labourer using that country’s typical subsistence con-
sumption basket. A welfare ratio above one indicates that wages are suf-
ficient for a society to feed itself. Allen (2007) compares living standards
in England and India by introducing the concept of a European respect-
ability consumption basket. This included grain, bread, beans, cheese,
meat, eggs, butter, beer, linen, candles, lamp oil, and fuel. British work-
ers enjoyed a welfare ratio of one or above. Using a basket that included
equivalent consumption items in the Indian context, Allen found that
the welfare ratio for India was always below one, except in 1600. Table
1.3 shows Allen’s bare-bones subsistence consumption baskets for India
based on rice, the superior grain, and millet, an inferior grain. The wel-
fare ratios calculated using the bare-bones subsistence basket rarely fell
below one.
Allen’s (2007) international comparison of real consumption wages
between England and India broadly confirms the grain wage findings of
Broadberry and Gupta (2006). Real consumption wages in North India
and Bengal were close to the English level in the early seventeenth cen-
tury but fell substantially behind during the eighteenth century.
There is evidence on the actual consumption basket from Bengal and
Mysore from Buchanan’s survey of the 1810s. This basket gives us a glimpse
into the lifestyle of the poorest people from a few districts in Bengal in the
early nineteenth century. Eighty per cent of the consumer expenditure was

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 28 The Decline and the Rise of the Indian Economy

800 70

700 60

600
50

Indian GDP / British GDP

GDP per capita in GK $

500
40
400
30
300

20
200

100 10

0 0
1600 1650 1700 1750 1801 1811 1821 1831 1841 1851 1861 1871

Indian GDP per capita in GK$ Share of Indian GDP per capita relative to Britain

Figure 1.4 Absolute and relative decline of Indian GDP per capita
(1600–1871)
Source: Broadberry et al. (2015)

on food, which included coarse rice, lentils, oil, and salt. All fish, meat,
and fuel were gathered, not bought in the market (Buchanan’s survey of
Dinajpur, 1833, pp. 149–150). Other evidence from the survey shows that
most of the expenditure was on food for labourers, with minimal expen-
diture on dwellings and clothing and some expenditure on religious cere-
monies. A comparable expenditure pattern was observed in surveys of the
consumption of Bombay cotton mill workers in the 1920s.
The unskilled workers were relatively better off in India under Akbar,
according to the indicators of grain wage, consumption wage, and Allen’s
welfare ratio, than at the end of colonial rule. The decline in the grain
wage during the seventeenth and eighteenth centuries was accompanied
by an increase in population from 142 million in 1600 to 207 million in
1801 (Visaria and Visaria 1983, p. 466). Grain wage stagnated as the
population rose further to 256 million in 1871, but the growth rate of
population was not high. Periodic famines created spikes in grain prices,
sometimes with devastating consequences for mortality, until the begin-
ning of the twentieth century (Broadberry and Gupta 2015). The main
decline in grain wage occurred in the seventeenth and eighteenth centu-
ries. As Figure 1.4 shows, most of the nineteenth century saw stagnation.
While Akbar’s reign was the high point in living standards, the decline
began well before colonization and coincided with the rising trade in tex-
tiles and the decline of the Mughal Empire.

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 1.5 From Wages to Per Capita Income 29

1.5 From Wages to Per Capita Income: Historical

National Accounting
So far, this is a picture of Indian economic performance before 1871
based on wages and prices. One limitation of wages is that most wages
are from non-agricultural activities, while most of the population in
India was engaged in agriculture. Therefore, a full assessment of living
­standard requires information on the population engaged in agriculture.
This requires us to move from wages to GDP per capita, which is a chal-
lenging task going back in history.
To estimate GDP for India over several centuries, Broadberry,
Custodis, and Gupta (2015) followed the historical national accounting
methodology that has been used to estimate GDP for several European
countries and increasingly for countries outside Europe. The method
builds demand side estimates of sectoral output for a given population
on the basis of what is needed for subsistence. The estimates are then
revised based on income elasticity of demand using information on
wages. The robustness of the demand side estimates come from cross-
checks with supply side estimates of sectoral output at given points in
time for which information is available. Broadberry et al. (2015) used
this methodology to have demand side estimates with the currently
available Indian data on population and consumption, and the series
analysed earlier on wages, grain prices, and cloth prices. The estima-
tion used data on agricultural and industrial exports, crop yields and
cultivated acreage, cloth consumption per capita, urbanization rates,
and government revenue to build up to aggregate output for agricul-
ture, industry, and services from the supply side in benchmark years.
This provides the first systematic long-run estimates of GDP per cap-
ita, challenging Angus Maddison’s estimates that started in 1000 CE.
Maddison assumed that most economies were at subsistence and there-
fore his estimates of Indian GDP per capita show no change until mod-
ern economic growth in the twentieth century. The new estimates are
based on careful analysis of available statistical evidence and show
changes over the centuries.
In Table 1.4, agricultural output is constructed from the demand
side using data on population, wages, and prices to estimate domestic
demand and data on exports for foreign demand. These demand-based
estimates are then cross-checked with agricultural supply, estimated
using data on crop yields and the cultivated land area. Industrial produc-
tion for the domestic market can also be estimated from information on
wages and prices and cross-checked against independent information on
cloth consumption per capita. Output of the export industries is based

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 30 The Decline and the Rise of the Indian Economy

Table 1.4 Changes in GDP by sector (1600–1871) (1871=100)

Industry and Rent and Total Per capita

Year Agriculture commerce services Government output GDP

1600 67.8 80.0 95.5 84.3 71.9 129.7

1650 63.8 75.3 95.5 48.2 67.3 121.2
1700 72.2 87.0 103.0 60.4 75.7 118.2
1750 76.8 97.0 110.8 46.9 81.3 109.6
1801 79.3 127.0 120.7 74.5 87.5 108.2
1811 76.0 104.6 125.3 77.3 82.9 98.8
1821 72.9 89.0 110.3 70.6 79.2 98.9
1831 77.5 82.4 116.2 71.3 81.8 97.0
1841 82.8 92.9 104.6 79.3 87.3 105.5
1851 91.5 99.6 114.4 87.8 95.9 105.8
1861 89.2 107.3 109.4 86.9 95.6 100.3
1871 100 100 100 100 100 100.0

Source: Broadberry et al. (2015, table 11)

on the export data collected by the European East India Companies. A

weighted average of the output of home and export industries is used to
estimate changes in industry and commerce. For services, the output
of the government sector is measured using data on tax revenue, while
the size of the private services and the rent sector is assumed to move in
line with the urban population. The cross-checks, where possible, match
estimated agricultural output from the supply and demand sides and
the estimation of home industrial output matches with independent esti-
mates of cloth consumption per head.
Table 1.4 shows that total industry and commerce grew rapidly
between 1650 and 1801. This sector includes home industry and export
industry. The latter grew faster in the seventeenth and eighteenth centu-
ries as Figure 1.5 shows, driven by exports of cotton cloth. This indus-
try grew rapidly as European trading companies traded in cotton cloth
that dominated the international market. The decline of this industry in
the nineteenth century, when British cotton textiles flooded the Indian
market, is known as deindustrialization. The agricultural sector grew,
but more slowly. Total output or GDP growth, although positive, failed
to keep pace with a slow growth in population during this period. This
is shown in the last column. The index of per capita GDP is then con-
verted into 1990 International Geary-Khamis dollars to get comparable
estimates to British GDP per capita. As Table 1.5 shows, in 1600 Indian
GDP per capita was just over 60 per cent of the British level, but by 1871
it had declined to under 15 per cent.

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 1.5 From Wages to Per Capita Income 31

Table 1.5 Indian and British GDP per capita (1600–1871)

(1990 International Geary-Khamis dollars)

Indian GDP British GDP Indian GDP per capita/British

Year per capita per capita GDP per capita (%)

1600 682 1,123 61

1650 638 1,100 58
1700 622 1,563 40
1750 576 1,710 36
1801 569 2,083 27
1811 519 2,065 25
1821 520 2,133 24
1831 510 2,349 22
1841 555 2,613 21
1851 556 2,997 19
1861 528 3,311 16
1871 526 3,657 14

Source: Broadberry et al. (2015, table 14)

The timeline of this decline is shown in Figure 1.5. As the blue line
shows, India’s per capita GDP declined from a high point in 1600, when
it was well above Maddison’s subsistence level per capita GDP of $550
(1990 International Geary-Khamis dollars). By the early nineteenth cen-
tury, the level was close to that estimated by Maddison. India’s relative
decline with respect to Britain was in part due to the absolute decline of
Indian living standards and in part due to Britain’s growing prosperity.
The new estimates of GDP per capita by Broadberry et al. (2015) con-
firm the findings based on the wage data that the gap in living standards
between India and Britain was relatively small during Akbar’s reign. The
decline began during the next phase of the Mughal Empire and contin-
ued under the first decades of East India Company rule. The nineteenth
century saw stagnation rather than decline with short periods of eco-
nomic growth that were not sustained.
The phenomenal rise in industrial exports from India, as shown in
Figure 1.5, had a small effect on GDP because industry was a small part
of the economy. Indian economic growth was largely driven by agricul-
ture, the largest sector. This is shown in Figure 1.6. The trend GDP per
capita did not track the changes in exports per capita in industry and
agriculture. While industrial exports per capita rose sharply, this was not
reflected in GDP per capita. Instead GDP per capita tracked agricultural
output per capita all the way up to 1871.

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 32 The Decline and the Rise of the Indian Economy

500.0

450.0

400.0

350.0

300.0
Index 1871=100

250.0

200.0

150.0

100.0

50.0

0.0
1600 1650 1700 1750 1801 1811 1821 1831 1841 1851 1861 1871

Export industry Export agriculture GDP per head

Figure 1.5 Industrial and agricultural exports per capita relative to

GDP per capita (1871=100)
Source: Broadberry et al. (2015)

As Table 1.5 shows, the beginning of the Great Divergence can be

traced back to the seventeenth century. Indian GDP per capita declined
relative to Britain, but also relative to its high point in 1600. Contrary to
the view that the golden age of textile exports from India to the rest of
the world had made the country prosperous, this chapter has shown that
there was economic decline in the seventeenth and eighteenth centuries.
The political aspects of the decline in the seventeenth and eighteenth
centuries have been explored, but more research is needed to understand
the economic decline of this period. One possible explanation is that
most of the fertile plains were already densely populated and as popula-
tions moved out of this area, the marginal land was less fertile and pro-
duced less output per head. Without more extensive irrigation and better
technology, agricultural output could not keep pace with population
growth. The declining trend in GDP per capita during the seventeenth
and eighteenth centuries occurred in China as well as India. In both
countries, this was driven mainly by trends in agriculture, as population
growth outstripped the growth in cultivated land area and crop yields
did not increase sufficiently to offset the decline in the land-labour ratio.

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 1.6 Globalization and Stagnation: 1860 to 1947 33

140.0

120.0

100.0
Index 1870=100

80.0

60.0

40.0

20.0

0.0
1600 1650 1700 1750 1801 1811 1821 1831 1841 1851 1861 1871

GDP per head Agricultural output per head Industrial output per head

Figure 1.6 Agricultural and industrial output per capita relative to

GDP per capita (1871=100)
Source: Broadberry et al. (2015)

1.6 Globalization and Stagnation: Economic

Performance 1860 to 1947
From 1871 there are systematic annual estimates of GDP by Alan Heston
(1983) covering 1870–1900 and Sivasubramonian (2000) from 1900 to
2000. These studies have been conducted within a national accounting
framework, drawing on the wider availability of statistical information from
the beginning of Crown rule. From Table 1.6, we can observe short periods
of growth in GDP per capita during the late nineteenth century. From the
turn of the twentieth century GDP per capita stagnated and since 1950
it has grown, indicating a transition to sustained economic growth. The
Indian economy grew faster than the historical trend but has lagged behind
more successful East Asian countries. However, East Asia was an excep-
tion among countries emerging from colonization. I will return to this in
Chapter 6. The stagnation of Indian incomes and living standards over
100 years of Crown rule points to a failure of colonial policies to generate
modern economic growth. Although India became more integrated into

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 34 The Decline and the Rise of the Indian Economy

Table 1.6 Economic growth in the

long run (% per year)

Per capita income

1870–1885* 0.5
1885–1900* 0.8
1900–1947 0.1

1950–1980 1.4
1980–1990 3.0
1990–2000 4.1

Source: Gupta (2019, table 1) based on

*Heston (1983) and Sivasubramonian (2000)

the trading world of the British Empire and could have access to the British
capital market, the stagnation was driven by stagnation in agriculture, as I
will discuss in Chapter 2. The literature has emphasized the decline of the
indigenous textile sector as a cause of economic decline in the nineteenth
century. This impacted on communities engaged in this sector. Its effect on
average living standards was small because the industrial sector was a small
part of the economy, as I have argued in this chapter.
Why did a globalized economy fall into stagnation? Was the integration
of India into the global network of the British Empire harmful to ­economic
growth? By the middle of the nineteenth century, Britain had abolished
the Corn Laws that imposed tariffs on grain imports and adopted the
doctrine of free trade, a policy that suited Britain’s industrial speciali-
zation and demand for imported raw materials for the industrial sector.
Free trade was imposed on India and other colonies. It is not clear that
free trade was the appropriate policy for India at this time, when most
countries, including the USA and Germany, were using tariffs to indus-
trialize and grow. The data points to some growth of the Indian economy
between 1870 and 1900, when India integrated into the global trading
network of the British Empire, but this was short-lived. (see Table 1.6).
The effect of trade on growth, and the differential effect of trade
on producers of agricultural and producers of manufactured goods,
are debated issues. Theories of trade based on comparative advantage
can be applied to colonial trade. Both countries could gain by special-
izing in the production of goods that could be produced more effi-
ciently. The colonies specialized in agricultural goods and the imperial
countries specialized in industrial goods. The colonies gained from the
growing demand for food and raw material in the industrial countries
and saw rising incomes. The Prebisch–Singer thesis cautioned against

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 1.6 Globalization and Stagnation: 1860 to 1947 35

Table 1.7 Share of trade in income: from

colonial times to independent India (%)

Year Trade/GDP

1835* 1.1–2.4
1857* 3.6–4.8
1913* >20
1950–1960 6.8
1960–1970 5.2
1970–1980 6.0
1980–1990 7.0
1990–2000 10.0

Source: Sivasubramonian (2004, table 5.7); *Roy

(2006, table 2.1)

this by showing empirically that the terms of trade of agricultural prod-

ucts relative to industrial products declined from the middle of the
nineteenth century to the middle of the twentieth century and argued
that specialization in agricultural production was not beneficial for eco-
nomic development (Singer 1989). In reality, the nineteenth century
saw divergence in living standards between agricultural and industrial
countries, with a few exceptions (Findlay and O’Rourke 2009, p. 415).
Cross-country data from the second half of the twentieth century finds
a positive effect of trade on per capita GDP (Frankel and Romer 1999).
However, the evidence from the nineteenth century is mixed. Mitchener
and Weidenmier (2008) show that being part of an empire increased
the volume of trade compared to countries outside the empire. Pascali
(2017) uses cross-country data to show that, for colonies, trade did not
always have a positive effect on indicators of economic development.
Countries with good institutions benefitted from trade, but others
did not and trade may have contributed to the increasing divergence
between developed and underdeveloped economies. Therefore, even
without considering implications of terms of trade, trade did not nec-
essarily lead to higher incomes in the nineteenth century.
As India integrated into the world economy, trade, investment, and
migration rose. The trade–GDP ratio increased dramatically, from 2 to
3 per cent in the mid-1800s to 20 per cent on the eve of the First World
War (see Table 1.7). India received 8 per cent of British overseas invest-
ment during 1865–1914 (Gupta 2021). This was not sufficient to raise
the rate of gross capital formation above 7 per cent of GDP. Most of this
investment went to the railways.

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 36 The Decline and the Rise of the Indian Economy
8,000
India Britain

7,000

6,000
GDP per capita in 1990 GK $

5,000

4,000

3,000

2,000

1,000

0
1600 1650 1700 1750 1801 1801 1811 1821 1831 1841 1851 1861 18711881*1891 1901 1911 1921 1931 1941 1947

The Great Divergence begins The Great Divergence widens

Figure 1.7 The Great Divergence between India and Britain

(1600–1947)
Source: Gupta (2019)

The nationalist historians have argued that the railways integrated

the agricultural hinterland and the ports, and paved the way for a
rising volume of trade in agricultural goods that supported indus-
trial Britain’s demand for food and raw material. I have argued that,
despite rising trade, the effect on economic growth was small. This
is consistent with Pascali’s (2017) argument that not all countries
gained from trade in the first period of globalization. Britain enjoyed
a positive trade balance with India. India imported more from Britain
than from the rest of the world and exported less to Britain com-
pared to the rest of the world. India’s net exports were positive all
through this period, but net exports to Britain turned negative from
the 1870s (Gupta 2018). During the interwar years, India’s trade
with Britain became more concentrated with the policy of Imperial
Preference. Differential tariffs benefitted Britain at the cost of other
trading ­partners (Arthi et al. 2024).
Figure 1.7 shows an increasing divergence between Britain and Indian
per capita GDP over the colonial period. The divergence increased
­during the first half of the twentieth century as British income increased
and Indian income stagnated. As discussed in this section, integration
into the global economy of the British Empire did not increase the
investment rate or have a significant effect on growth. Stagnation in
per capita GDP paralleled agricultural stagnation in the first half of the
twentieth century. This will be discussed in Chapter 2.

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 1.7 From Free Trade to Regulation 37

1.7 Stagnation to Modern Economic Growth:

From Free Trade to Regulation
In 1947, the newly independent state of India moved away from the
colonial policies. The first step was to set out an agenda for industri-
alization and break with the global economy. Global integration and
the specialization in agriculture was seen as a hindrance to economic
development. This view was expressed in other parts of the under-
developed world too. The Economic Commission of Latin America,
under Raul Prebisch, raised similar concerns. The newly independent
states of South Korea and Taiwan adopted industrialization as a goal.
Newly independent states in Africa moved in a similar direction a
decade later.
To the policymakers in the less developed countries, an open econ-
omy was a part of the imperial connection, and an international division
of labour based on comparative advantage had adverse consequences
on economic development. Industrialization was the way to change this
division of labour. While national prestige and tariffs to protect an infant
industry had motivated economic policy towards industrialization in nine-
teenth century Europe and the USA, the rhetoric in post-colonial coun-
tries was to break with their imperial connection and move away from
specialization in agriculture. The policies for industrialization adopted
in the twentieth century were far more interventionist. In the industri-
alization of Japan and the Soviet Union in the first half of the twentieth
century, the state had played a more important role. After 1945, policy
makers in Latin America adopted import-substituting industrialization
as the goal. Countries gaining independence from colonial rule in Asia
and Africa followed a similar path. Import-substituting industrialization
was the path of economic development in the less developed world in the
1950s and 1960s. In the short term it raised the rate of growth in many
countries. The outcome in the medium and long term, depended on how
countries reoriented their policies to reintegrate into the global economy.
Newly independent countries in East Asia, such as South Korea and
Taiwan, initially followed policies of import-substituting industrializa-
tion and regulated international trade. East Asian countries embraced
the Japanese model and moved quickly towards reintegration with the
international market. Many import-substituting economies, including
India, remained protectionist, with adverse consequences on growth.
The vision of Jawaharlal Nehru, India’s first prime minister, was indus-
trialization and self-sufficiency not global connections. Industrial devel-
opment was at the core of this policy. India moved from being an open
economy to one of the most regulated economies in the world. GDP per

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 38 The Decline and the Rise of the Indian Economy

capita grew at less than 2 per cent per year, which was low in comparison
to the fast-growing economies in East Asia. In comparison with other
developing countries, India was not that different. Delong (2003) sees
India’s performance under planning as average rather than disastrous.
Output per worker and the share of investment in GDP was comparable
to the average developing country during the period 1960–1992.
The new government introduced Soviet-style five-year plans that set
targets for different sectors, regulated international trade, restricted
the entry of the private sector into certain industries, and put the
public sector in control of the development of intermediate and cap-
ital goods industries. A full discussion of the successes and failures
of this policy will be taken up in the next chapters. At this point, it
is worth noting that the increase in economic growth was due to ris-
ing agricultural growth and rapid industrial growth in the early phase
of ­import-substituting industrialization. The policies of state-directed
development pulled India out of stagnation, but did not turn it into a
high-growth economy.
The country faced several economic and political crises in the 1960s
and 1970s. The monsoons failed in 1965 and 1966 with a consequent
fall in grain output by 10–20 per cent and India turned to the USA for
food aid, which undermined the policy of self-reliance. American food
assistance came with the demand for a devaluation of the rupee to ensure
greater integration with the global economy. The lack of adequate export
earnings showed the vulnerability of inward-looking developmental pol-
icies and industrial growth based on import substitution began to slow
down. The country did not have enough foreign exchange reserves to
pay for food imports. The crisis saw a change in the direction of policies
towards agriculture. Infrastructure and subsidized inputs to facilitate
adoption of high yielding varieties of seeds paved the way towards the
Green Revolution. Chapter 2 will discuss these changes and their implica-
tions in more detail.
The political crises that followed changed the nature of Indian politics.
The Congress-led government under Nehru had commanded support
in all parts of the country. With Nehru’s death in 1964, the political
leadership passed on to Lal Bahadur Shastri as prime minister. Shastri’s
untimely death in 1968 created a vacuum in leadership and Nehru’s
daughter, Indira Gandhi, became prime minister. She did not have the
same support. The Congress Party split into two groups. Gandhi built
her own brand of socialist developmental policies by nationalizing Indian
banks in 1969 and removing the privy purse that the rulers of the princely
states enjoyed as a compensation for giving up territorial sovereignty of

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 1.7 From Free Trade to Regulation 39

the regions they had ruled at the time of independence. Gandhi invoked
the rhetoric of ‘get rid of poverty’ and signalled redistribution from the
privileged to the poor. In reality, Gandhi centralized political power
and in 1975 suspended the carefully built democratic institutions of the
country.
The 1970s brought further political crisis. The Green Revolution
in agriculture had created a strong agricultural lobby whose inter-
ests were different to that of industry. New political parties repre-
senting agricultural interests demanded more subsidies towards
agriculture and different economic policies. The new political groups
fragmented the political space and weakened the dominant position
of the Congress. When Gandhi called elections in 1977, she was
defeated. Indian politics had changed forever from being dominated
by the Congress to several regional political parties dominant in the
provinces, creating more political competition on the national stage.
A number of regional and group-based parties held the balance of
power and short-lived coalitions were in government until Gandhi’s
re-election in 1980.
In the new regime, the focus of economic policy turned from redis-
tribution to growth. The years leading to the assassination of Indira
Gandhi in 1984 and the election of Rajiv Gandhi as prime minister
saw a new direction in policy making. From state-directed develop-
ment in the first three decades after independence, economic policy
signalled a greater role to the private sector. The first step was the
dismantling of industrial regulation and a gradual removal of indus-
trial licensing. Second, the extensive quantitative controls of trade,
such as import quotas, were replaced with price-based controls such
as tariffs and subsidies. Both policies opened up opportunities for the
private sector, that had previously faced barriers to entry in several
industries.
Rodrik and Subramanian (2005) and Kohli (2006) distinguish
between the ‘pro-business’ reforms of the 1980s, when the regulatory
framework towards private investment was relaxed, and the ‘pro-market’
reforms that followed a large devaluation of the Indian rupee in 1991.
Rodrik and Subramanian (2005) see the removal of industrial licenses
and price controls as indicative of an ‘attitudinal shift’ towards the pri-
vate sector. Private investment was given access to new sectors and faced
a favourable environment. The ‘pro-market’ changes, on the other hand,
were indicative of opening up the economy to international competi-
tion. Rodrik and Subramanian (2005) argue that, during the years of
planned industrialization, the Indian economy was at some distance

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 40 The Decline and the Rise of the Indian Economy

Table 1.8 Accounting for growth: a long view (1950/51=100)

GDP Employment Capital TFP

1890/91 73.5 79.7 29.1 138.0

1900/01 76.7 81.3 38.7 127.0
1910/11 94.7 86.4 39.1 150.5
1920/21 87.4 85.2 41.6 136.5
1929/30 109.1 86.0 51.7 155.5
1935/36 110.4 88.7 64.3 141.4
1946/47 116.1 97.9 93.2 121.0
1950/51 100.0 100.0 100.0 100.0
1960/61 147.1 116.7 130.6 120.5
1970/71 211.2 143.3 218.3 124.6
1980/81 286.7 153.5 344.6 135.2
1990/91 494.0 196.1 556.1 166.0
1999/00 819.1 268.0 971.2 182.6

Source: Broadberry and Gupta (2010)

from its potential and the new environment created favourable condi-
tions for existing firms in the private sector and led to a large increase in
productivity.
Growth in output per worker increased from 1.3 per cent per year dur-
ing 1960–1980 to 3.7 per cent per year during 1980–2004. Total factor
productivity growth increased from 0.2 per cent to 2.0 per cent per year
(Bosworth et al. 2007). The pro-market reforms of the 1990s lowered
price-based controls and removed restrictions on international capital
flows. The change from a low to a high-growth path followed the reforms
of the 1980s. The small steps taken to reduce regulation in the 1980s
generated a large response in terms of GDP growth (Delong 2003).
The growth rate in GDP per capita doubled from 1980 and rose
above 4 per cent per year after 1990 (see Table 1.6). The 1980s marked
a clear break with the past. Srinivasan and Tendulkar (2003) attrib-
ute the growth in the 1980s to an increasing fiscal deficit and argue
that it was unsustainable. Panagariya (2004) claims that the upsurge in
growth in the 1980s could not have been sustained without the reforms
of the 1990s.
What can we learn by taking a historical perspective? Table 1.8 pres-
ents the trends in GDP, capital accumulation, employment, and total
factor productivity growth from 1871 to 2000. Before 1950, GDP moved
in line with changes in employment. After 1950, capital accumulation
increased significantly and changes in GDP moved in line with changes
in capital stock. The efficiency cost of the Nehruvian strategy shows up

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 1.7 From Free Trade to Regulation 41

2,000

1,800

1,600

1,400
GDP per capita in GK $

1,200

1,000

800

600

400

200

0
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000
Year

Figure 1.8 Reversal of fortune: Indian per capita GDP (1900–2000)

(1990 International Geary-Khamis dollars)
Source: Maddison Data Project

in the slow growth of total factor productivity before 1980. As Delong

(2003) has argued, despite the loss of efficiency, the increase in resource
mobilization had a positive effect on Indian growth. Gross domestic cap-
ital formation rose from 6–7 per cent of GDP before 1940 to 13 per cent
in 1951, climbing to 20 per cent in the 1970s. The independent repub-
lic of India saw a reversal of fortune with the end of colonization as the
economy moved from stagnation to growth.
The debate on the turning point in India’s economic growth after 1950
has identified two years, 1980 and 1990. The former coincides with the
re-election of Indira Gandhi and her new approach to ­policy making
and the latter with the devaluation of the rupee in 1991. A ­standard
approach is to estimate a structural break in indicators of GDP to
­identify a statistically significant change in the rate of growth. Most stud-
ies of Indian GDP look at the data from 1950. A consensus has emerged
in the literature that a structural break in India’s economic growth
occurred in the early 1980s, brought on by the pro-business reforms
(Balakrishnan and Parameswaran (2007), Rodrik and Subramanian
(2005), Wallack (2003)).
Hatekar and Dongre (2005) take a long view from 1900 and test for a
statistical structural break. The structural break in GDP growth was in
1952 following Indian independence. They argue that this is not because

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 42 The Decline and the Rise of the Indian Economy

growth under the Nehruvian planning was exceptionally high, but

because growth in the colonial period was dismally low. The Nehruvian
regime was a response to the inadequacies of the colonial period and the
transition from stagnation to growth coincided with the regulatory pol-
icies of the Nehruvian plan. Figure 1.8 charts the reversal of fortune in
Indian per capita GDP from 1950. Per capita GDP grew slowly in the
first thirty years and the rate of growth accelerated after 1980. India’s
so-called growth failure after independence is relative to the East Asian
miracle. A long-run view is a better way to assess the economic outcomes
of the first thirty years after independence and the transition from a colo-
nial economy.

1.8 Conclusion
In this chapter I have covered four centuries of Indian economic perfor-
mance and living standards. Using data on real wages and GDP per cap-
ita, I have shown that the Great Divergence began before colonization.
In 1600, the living standard in India was lower than that in Britain, but
the difference was small. The gap widened during the seventeenth and
eighteenth centuries as real wages and GDP per capita declined in India
and rose in Britain. By the early nineteenth century, Indian real wages
and GDP per capita stabilized at a low level. There were short periods of
growth in the late nineteenth century, but Indian income stagnated dur-
ing most of the colonial period, particularly in the first half of the twenti-
eth century. Colonial policies of one of the richest countries in the world
did not put India on the path of modern economic growth.
The Indian economy moved out of stagnation into growth after inde-
pendence and 1950 was a turning point in India’s long-run economic
growth. Another turning point came around 1980 with the adoption of
a more liberal economic environment. Although Indian growth was low
compared to East Asian economies, it was similar to most other countries
in the developing world. The policies of regulation and state-directed
industrialization under Nehru brought about a reversal of fortune in a
decolonizing economy. The efficiency cost of an import-substituting
industrialization policy was in part compensated by a rapid increase in
capital accumulation.

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 2 Agriculture as the Engine of Growth

At the time of independence in 1947, agriculture was the dominant sec-

tor in the Indian economy. It produced half of the nation’s output and
employed two-thirds of the country’s workforce. Most Indians lived in
the countryside. Two hundred years earlier, at the time of British con-
quest in 1757, revenue generated from agriculture was the main source
of the fiscal capacity of the state. It was in this sector that the East India
Company introduced the first institutional change in order to maximize
revenue collection. The colonial interventions were to have long run
effects on India’s economic development. I have argued in Chapter 1
that the decline and stagnation of Indian incomes from the middle of the
seventeenth century were driven by agriculture rather than the fortunes
of traditional industries. In 1947, agriculture had low output per worker
compared to the non-agricultural sectors.
In this chapter, I will explore the factors that held back growth in
agriculture, the changes in land tenure, and taxation that impacted on
various aspects of cultivation and markets in land and labour. I explore
the role of investment in infrastructure: railways and irrigation and
the commercialization of agriculture. I will emphasize that the failure
to increase land productivity was the most significant economic con-
sequence of colonial policy. The stagnation in agriculture was reversed
only after independence with investment in agricultural infrastructure
and the onset of the Green Revolution.
Producing an agricultural surplus that would support an industrial
population has been at the heart of the development experience in many
countries. An agricultural revolution in Britain that increased land pro-
ductivity preceded the industrial revolution. Britain’s comparative advan-
tage in industry led to specialization in industrial activity and trade in
industrial goods for agricultural goods (Crafts 1989). Regional speciali-
zation in agriculture and industry in nineteenth-century USA paved the
way for inter-regional trade in agricultural goods consumed in the indus-
trial towns and cities. Primitive accumulation of capital that squeezed
the surplus from the peasantry was a slogan of Soviet industrialization. In

43

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 44 Agriculture as the Engine of Growth

the age of empires, agriculture played the role of supplying the industrial
centres in Europe with food and raw material. However, the magnitude
of this trade was not that large for all colonies.
Food grains were less important in India’s colonial trade compared
to raw materials such as raw cotton and jute and strategic goods such as
opium that was exported to China in the nineteenth century to pay for
British imports of Chinese tea. The latter were the main exports in colo-
nial India. The absence of a policy to increase yields in food production
pushed much of this sector towards an ecological crisis. The colonial
government set up experimental centres to develop better quality agri-
cultural seeds, but this was limited.
Most Indians lived on the fertile plains. As the population expanded,
cultivation moved to less fertile land. The traditional methods of the
regeneration of soil, such as leaving land fallow, became increasingly
infeasible as the population grew. Infrastructural investment in irriga-
tion by building canals and wells began in the late nineteenth century
and was available only in some parts of the country. As land productivity
reached its limits, the colonial economy could only move into stagna-
tion. Brij Narain, writing in 1929, claimed that the British did more
for Indian agriculture than any other ruler by building canals and con-
ducting research into new varieties of seeds. While this was true of parts
of northwestern India, many regions faced a decline in yield per acre.
Surprisingly, productivity in the drier regions increased more than in the
rain-fed fertile plains (Ludden 1999, p. 24). What caused these differ-
ential changes in productivity? Why did productivity of less fertile land
improve more than in the flood plains of northern and eastern India?
The colonial government had intervened on three fronts. First, it
introduced new land tenure systems from the late eighteenth century.
The system of land tenure determined the way tax was collected. The
premise was that well-defined property rights would increase the produc-
tivity of land and generate more surplus. Second, the colonial govern-
ment opened up an export market for agricultural commodities from the
middle of the nineteenth century. It constructed railways and roads to
link the hinterland to the ports, but also regional markets, reducing costs
of trade. Third, it built irrigation canals in some parts of the country and
invested in research to develop high-yielding varieties of seeds, mainly in
sugarcane, jute, and cotton, but also in rice and wheat. Irrigation would
mitigate water scarcity in monsoon-dependent agriculture and better-
quality seeds would increase yields. However, investment in both was
inadequate. Pray (1984) argues that even if more resources had been
devoted to agricultural research, the investment in irrigation was inade-
quate and the fertilizer required for the new types of seeds too expensive

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 2.1 Pre-colonial Agricultural Landscape 45

to lead to wider adoption. In the following sections, I assess the impact

of these interventions. I start with a description of agriculture before col-
onization and the changes over the next three centuries.

2.1 Pre-colonial Agricultural Landscape

‘India’s agrarian history is a history of regions’ (Ludden 1999, p. 17). The
diversity of climate, landscape, and soil led to differences in agricultural
output, landholding, taxation, and other institutions. Broadly speaking
the subcontinent can be divided by rainfall patterns into two agricultural
regions: the more humid regions of eastern India and the coastal regions
of the peninsula, and the drier regions of the north and the west and the
rain shadow areas of the peninsula. The humid regions produced rice
and the drier regions grew wheat, sorghum, and millet. Soil quality also
determined what could be planted. The Gangetic plain in northern and
eastern India has rich alluvial soil. This is where rice, sugarcane, and
indigo were grown. Wheat was cultivated in the northwestern regions.
The tracts of black soil in central and western regions are rich in nutri-
ents and suitable for cultivation of raw cotton. In the rest of the dry
regions of the peninsula, sorghum and millet were cultivated. Figure 2.1
shows the regions where main food crops like rice and wheat and a major
cash crop like cotton were grown. The reliance on monsoon rains led
to large fluctuations in output and famines were common, with signifi-
cant localized effects and population decline. Consequently, population
growth remained low until the twentieth century.
Marx had viewed Indian villages as self-sufficient economies, but the
Indian villages in the seventeenth and eighteenth centuries were shown
to be more connected and dependent on surrounding regions. There was
trade in agricultural products on the caravan routes of central, southern,
and western India and along waterways in the riverine delta of the east
and north. Crops that were used as raw materials for industrial activity,
such as raw cotton, were traded across regions. The magnitude of this
trade was small, as indicated by the price dispersion across markets.
The earliest estimate of the share of agriculture in Indian GDP goes
back to 1600 (Moosvi 2008, pp. 2–3). The share of the primary sector,
including agriculture, animal husbandry, fisheries, and forest, was esti-
mated to be 64 per cent; industry and mining was 11 per cent and the
remainder was services. The fertile regions of rain-fed agriculture and the
Gangetic plain of the north were densely populated. Areas under cultiva-
tion increased only by expanding into new, less fertile regions. Moosvi’s
estimates also give us an idea of the magnitude of the extensive margin in
agriculture in northern India (Punjab, United Provinces, and Gujarat).

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 46 Agriculture as the Engine of Growth

75° 90°

us CHINA

Ind
KASHMIR

AFGHANISTAN
Lahore TIBET
vi Amritsar
Ra PUNJAB
H
Multan I
M
30° A 30°
Patiala L A
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Y A
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ST Ind UNITED ra
HI RAJPUTANA PROVINCES ut
A

C BHUTAN ap
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LU
hm
R

BA Jaipur Lucknow Br a
PE

Ga n ges
SIND Patna
Karachi CENTRAL INDIA
BIHAR
Bhopal Dacca
Ahmedabad BENGAL
Chittagong
Narmada CENTRAL Mah Calcutta
PROVINCES a
Mouths of

na
T a pi B Nagpur ORISSA

di
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the Gange
BOM

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AR
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Bombay G o davari
Arabian HYDERABAD
Bay of
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15° Goa Penn 15°
ar
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MYSORE
Madras
Bangalore
MAD
La

Agricultural Produce Pondicherry

cca

1929
div

Rice Palk Strait

Indian Ocean
eI
sla

Wheat
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Cotton SRI LANKA

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Gulf
0 200 400 Kilometers of
Mannar
0 200 400 Miles

75° 90°

Figure 2.1 Agricultural map of India (1911)

Between 1595 and 1665, the annual rate of growth in total cropped
area was 0.23 per cent, rising to 0.37 per cent from 1665 to 1909–1910
(Moosvi 2008, p. 6). Agriculture expanded into marginal land in western
India from the middle of the nineteenth century and growth in agricultural
output lagged behind population growth (Guha 1985, p. 83). Extension
of arable agriculture into pastoral land came at the cost of a decline in cat-
tle numbers per unit of land and soil erosion (Kaiwar 1994). The increase
at the extensive margin was not matched by an increase in yield per acre
in most regions. The productive capacity of land had not changed in the
seventeenth and eighteenth centuries, as shown by Moreland and Moosvi
for North India and by Chaudhuri for Bengal (Roy 2010). Even under
new policies of land tenure, productive capacity did not change signifi-
cantly in the nineteenth and early twentieth centuries.

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 2.2 Land Tenure and Land Revenue Systems 47

Table 2.1 Yield per acre (1600–1960)

Ratio 1960/1600

Punjab average India average

Ratio 1910/1600 Highest yield Middle yield

Wheat 0.75 0.64 0.66

Barley 0.88 0.60 0.74
Rice 0.69 0.51 0.66
Cotton 0.24 0.26 0.14
Sugarcane 2.21
Average yield 0.91
Acreage 1.89
Output 1.57

Source: Moosvi for 1600, 1910 (2015); Desai for 1960 (1972)

By 1900, the extensive margin was largely exhausted as cultivable

‘wasteland’ became scarce (Roy 2002). The only change was at the
intensive margin. This was limited to regions that had irrigation or could
switch to higher-value crops (Kurosaki 2003). Crop yield declined in
most regions as the country faced an ecological crisis. Irrigated land
under cotton and wheat saw increases in yield per acre, but in areas of
rain-fed agriculture, lack of complimentary inputs such as fertilizer and
irrigation led to stagnation that lasted until independence. Yield per acre
in rice declined on the fertile plains of Bengal. Table 2.1 shows that
land under cultivation nearly doubled between 1600 and 1910, but the
increase in output was lower. Yield per acre was substantially lower in
1910 compared to 1600, for all crops except sugarcane. Desai (1972)
divides regions according to high yield and middle yield, with reference
to the median yields in the country, and compares yields in 1600 and
1960. He finds that yield per acre was lower in 1960 when comparing
the most productive areas in 1600, with the most productive a­ gricultural
region of Punjab in 1960, and when comparing the median-yield regions
of 1600 with the Indian average in 1960 (see Table 2.1). The data
­suggests that agriculture expanded to poorer quality land and that little
was done to increase land productivity until the Green Revolution in
independent India.

2.2 Land Tenure and Land Revenue Systems

Land revenue collection in colonial India was undertaken under three
systems of land tenure. the zamindari or the landlord system, where the

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 48 Agriculture as the Engine of Growth

land was owned by a landlord and the cultivators were the tenants. The
obligation to pay taxes was with the landlord. There were two differ-
ent non-landlord systems: ryotwari and mahalwari. The ryotwari system
of land tenure gave occupancy rights to the cultivators, who were then
responsible for the payment of taxes to the colonial authorities. Under
mahalwari, a village or a community of cultivators owned the land and
paid the taxes collectively, although an individual’s share was assigned
by the community. The system adopted the norms and practices of many
village communities in northern India.
The East India Company’s win at Plassey gave it control of the fis-
cal system. Before British occupation, land was owned by the state
and a local ruling elite of tax collectors were appointed as the fiscal
intermediaries. Under the customary rights, the right to cultivate a piece
of land could pass on from the cultivator to the next generation together
with the tax liability. This did not confer legal ownership of land to the
cultivator. To the British, this did not constitute ‘well-defined prop-
erty rights’. In the customary system, land could not be bought or sold.
Arbitrary evictions were rare, although non-payment of taxes could lead
to dispossession or forced labour on land (Kumar 1998, p. 181). To
the British rulers, the definition of property rights came from their own
system of legal ownership and the consequent ability to buy and sell.
Without these, they did not see a scope to incentivize the cultivators
to invest in land and increase productivity. The East India Company
introduced European norms of legal ownership to land. As the ruler
of Bengal, the Company relinquished state ownership of land and
gave property rights to the local landlords or zamindars (Baden-Powell
1896). The customary landlords became the legal owners and could
lease their land to the cultivators. The landlords collected rent from the
cultivators and were responsible for the payment of taxes. They could
also use the land as collateral or sell it at a market price. Under this
system, land tax was fixed at a share of output that was to prevail in
perpetuity. Hence the zamindari system is also known as the system of
permanent settlement. As the Company extended its political control
to the rest of India, the zamindari system of permanent settlement was
adopted in the newly conquered areas initially, but from the 1820s two
different systems of non-landlord tenure were introduced, which made
the cultivator responsible for paying taxes. The tax rate could be revised
periodically and, therefore, differed from the earlier system of perma-
nent settlement.
Why was the introduction of legal property rights important to the
East India Company? The main concern was revenue and land was
the main source. The agricultural revolution in Britain had relied on the

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 2.2 Land Tenure and Land Revenue Systems 49

enclosure movement that demarcated each piece of land to an owner

instead of un-enclosed plots across open fields (McCloskey 1972). This
was seen as a necessary condition for farmers undertaking improvements
in agriculture and the consequent technological change. From the point
of view of the East India Company, it was necessary to clearly define
ownership of land in India in order to increase agricultural productivity.
This would generate more revenue. The Company also assumed that
in the landlord system, fixing the tax rate would encourage landlords to
improve land productivity.
The expectation that the landlord system would produce an entrepre-
neurial class of landlords did not materialize (Barber 1975, p. 161). The
landlords lived off the rent and became absentee urban dwellers. Yields
dropped on the fertile plains of Bengal because of intensive land use
without investment in regeneration. After 1818, influenced by utilitar-
ians such as James Mill and the Ricardian theory of rent, the net produce
or the surplus over basic costs of production was considered to be a more
efficient way to tax land in India (McAlpin 1974). Therefore, the culti-
vator rather than the landlord became the tax payer. Figure 2.2 shows
where the systems prevailed.
In the fertile tracts where population density was high and land was
scarce, there was scope to extract rent and landlords became a dominant
social group (Stokes 1959). In the dry agricultural regions, where pas-
toral communities eked out a living, land was abundant and labour was
in short supply. Granting ownership to the cultivators was intended to
strengthen ties to land, establish settled cultivation, and move the labour
force away from their pastoral lifestyle (Ludden 1999, pp. 23–24).
The difference between the landlord and the non-landlord systems, as
the British rulers saw, was in the incentives it created for technological
improvements. It was a direct transposition of the British experience of
the enclosure movement and agricultural revolution to India. The Indian
context turned out to be different. Where surplus could be extracted as
rent, the landlords did not undertake investment in land. In the non-
landlord regions, the constraint was the availability of an investible
surplus for the cultivators. Land tax was half of total revenue in the nine-
teenth century (see Table 2.2). While the returns on investment in agri-
cultural infrastructure by the state was low in landlord regions because
land tax rate could not be raised, in non-landlord regions the state could
gain substantial increases in revenue by improving land productivity. I
will come back to this point in the section on investment in irrigation and
an evaluation of colonial policy.
The two systems created different institutions of labour and credit.
They also created different paths to inheritance. Unequal land ownership

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 50 Agriculture as the Engine of Growth

Table 2.2 Composition of revenue (1858–1940)

1858–1859 1870–1871 1900–1901 1921–1922 1930–1931 1940–1941

Land revenue 50 40 53 27 23 19
Customs 8 5 9 30 36
Excise 4 6 10 14 13 16
Income tax 0.3 4 3 15 12 19
Salt 7 16 16 5 5 5
Opium 17 12
Others 13 18 9 10 11 13

Source: CEHI (tables 12.4 and 12.7)

Figure 2.2 Land tenure systems

Source: Banerjee and Iyer (2005). Copyright American Economic
Association; reproduced with permission of the American Economic Review

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 2.3 Commercialization of Agriculture 51

remained a feature of landlord regions, where land ownership was

­concentrated from generation to generation. In the non-landlord regions,
inheritance created grounds for subdivision of plots cultivated by house-
holds and the fragmentation of land had implications for ­technological
change. Kaiwar (1994) suggests that fragmentation of land in the ryot-
wari system in western India led to dispersed land holdings for a given
household, creating very little incentive to increase output beyond sub-
sistence. Ironically, the colonial attempts to create incentives through
well-defined property rights resulted in a structure of landholding that
minimized incentives for improving the quality of land. The property
rights in land created a market in land. Land could be used as collateral
for loans, paving the way for transfer of land through indebtedness. Land
could be sold by choice or because of economic distress. The latter led
to a rise in landless workers, such as sharecroppers or seasonal work-
ers. In ryotwari areas, famines resulted in increased indentured migration
(Aggarwal 2022, chap. 1). It also allowed land ownership to pass on to
non-cultivating groups. The role of moneylenders assumed a new impor-
tance. Overall, the land tenure and land revenue systems had lasting
effects on the Indian economy and society.

2.3 Commercialization of Agriculture

From the middle of the nineteenth century, two major changes in trans-
portation technology contributed to the rapid expansion in trade in agri-
culture. A new railway network connected the interior to the ports and,
over time, it connected different parts of the interior, reducing trans-
port costs. Before the construction of a rail network, trade in agricul-
tural products relied on pack bullocks, country river boats, and coastal
routes. Commodities were transported by pack bullock in most parts of
the country and volumes were limited. Moreland (1923, p. 226) esti-
mated that each ox could carry 336 pounds and travel six to eight miles
a day. The railways revolutionized transport. It reduced travel time and
massively increased the volume of bulky agricultural goods that could
be shifted within regional markets, and to the ports for export. Railways
increased trade in cash crops and in food grains.
The second major change was in shipping technology. The switch
from sail to steam and the opening of the Suez Canal in 1869 increased
the speed of travel and reduced the cost of shipping between Europe and
Asia. Trade between Europe and Asia used to take a long route along
the coast of Africa and the Suez Canal made it profitable for Europeans
to import agricultural goods from India and export industrial products.
The changing composition of trade is shown in Table 2.3.

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 52 Agriculture as the Engine of Growth

Table 2.3 Changing composition of Indian exports (1811–1935)

Raw Cotton Raw Food Raw Jute

cotton goods Indigo silk grains jute goods Opium Sugar Tea

1811 4.9 33.0 18.5 8.3 23.8 1.5

1828 15.0 11.0 27.0 10.0 17.0 4.0
1850 19.1 3.7 10.9 3.8 4.1 1.1 0.9 30.1 10.0 0.2
1870 33.2 2.5 5.8 8.1 4.7 0.6 2.1
1890 16.5 9.5 3.1 19.5 7.6 2.5 5.3
1910 17.2 6.0 0.2 18.4 7.4 8.1 5.9
1935 21.0 1.3 13.5 8.5 14.5 12.3

Source: CEHI, Volume 2: Tables 10.10 and 10.11

India became a source of raw material for British industry and played
an important role in trade in the British Empire. The export of large
quantities of opium to China balanced the triangular trade of selling
opium to the Chinese people and buying tea in China for the British
market. In 1811 opium was the second largest component of India’s
exports, after textiles (see Table 2.3). After the Opium Wars, the unoc-
cupied land in Assam and Bengal was developed for tea cultivation by
British companies and the importance of opium in trade declined. Tea
had been discovered growing wild in Assam and British companies set
up plantations to grow tea as a commercial crop for export. Tea plan-
tations were established in large areas of eastern India and the hills of
southern India and by the end of the nineteenth century India was the
main supplier of tea to the British market.
During the American Civil War, raw cotton from India temporarily
replaced American cotton in the British textile industry. In the black soil
regions of western and central India there was a big expansion in cotton
cultivation. Even after American cotton exports resumed, Indian cotton
acreage did not decline. Raw cotton was sold to the emerging modern
cotton textile industry and cotton became a major cash crop. In 1810,
cotton cloth had been one-third of total exports. Over the nineteenth
century, indigo, opium, and raw cotton displaced cotton textiles as the
main traded good, reflecting India’s integration into the global network
of the British Empire. Food grains such as wheat and rice were exported
too, but in small quantities until 1870 and did not ever become the larg-
est single item.
The integration of regional markets and access to the world market
changed the world of the Indian cultivator. It opened up opportunities
for cultivation of new crops and increased the response to changing
prices. It created the possibility for trade within a region as well as across

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 2.3 Commercialization of Agriculture 53

regions. The literature on commercialization of agriculture often sees

self-sufficiency as necessary for survival and cultivation of cash crops as
the road to destitution. An alternative view is that trade creates oppor-
tunities for gains from specialization.
Crop suitability depends on soil type, gradient, and climate. Regions
specialized in basic food grains: rice grew in the rain-abundant areas of
the east and wheat and millet in drylands in the south. The black soil of
the Deccan was suitable for growing cotton, and tea had grown natu-
rally in Assam. Sugarcane requires water-intensive cultivation and there-
fore can be grown in places with abundant water. Specialization opened
opportunities for gains from trade in interconnected markets. The mod-
ern transportation network paved the way for rising interregional trade.
It has been argued that specializing in cash crops makes cultivators
vulnerable to harvest failures (Dutt 1952, pp. 348–50, 536, 662). This is
a valid concern if markets are not integrated and, in such contexts, har-
vest failures could also lead to food shortages. Before the railways, prices
diverged across markets in response to weather shocks. Price data from
Coromandel in the eighteenth century shows large differences in prices
between places within 100 kilometres of each other. The Enquiry into
Wages and Prices in 1914 also points to large differences in the price of
grain across districts in 1838 (Datta 1914). When the railway network
expanded, market integration enabled specialization due to reduced vul-
nerability to rainfall shocks.
McAlpin (1974) has argued against the view that the cultivators had
no agency in the process of commercialization and became victims of
the market. Instead she shows that cultivators took rational decisions
to grow food or cash crops by responding to longer term changes in the
relative prices of food and cash crops. In the absence of a reliable trans-
portation network and irrigation, cultivators could mitigate the risk of
harvest failure by investing in storage and responding to market prices
in a limited way. Irrigation, where available, reduced the risk of har-
vest failure. Railways reduced the risk of starvation due to harvest fail-
ure because grain could be transported from other regions. Therefore,
as the transportation and irrigation networks expanded, the cultivators
could respond to prices. The context of McAlpin’s analysis is the cot-
ton producing tracts and the extent to which cultivators switched from
food to cotton during the international shortage in raw cotton during
the American Civil War of the 1860s. As McAlpin (1974) argues and
Dharam Narain (1965) confirms, the supply response to price changes
in cotton was bigger in the irrigated areas of Punjab and the Deccan,
supporting the idea of rationality in the crop choice made by the peasants
when irrigation reduced the risk of harvest failures.

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 54 Agriculture as the Engine of Growth

If railways improved the speed and volume of transport of grain from

regions of surplus to regions of shortage, this would be reflected in
declining price dispersion and fewer famines. Hurd (1975) has shown
that the coefficient of variation in prices, which captures price differ-
ence across markets, declined with the construction of the railways.
Donaldson’s (2018) recent careful statistical analysis also finds greater
integration of markets with the construction of the railway network.
This increased specialization into cash crops and food crops, depending

NORTH
WEST KASHMIR
PESHAWAR
FRONTIER RAWALPINDI

AFGA NI STAN
PROVINCE
Indian Railways Map - 1870
LAHORE AMRITSAR
SI
PUN JAB N LUDHIANA
DE D, P
MULTAN LH UN
I R JA
SAHARANPUR
S. LY B
S. &
LY
BALUCHI STA N IR
LH
DE DELHI RO
& HI
B O
JA LK UD U N I T E D
UN ALIGARH HU H P ROVI N C E S
,P ND &
ND B H U TA N
SI RAJPU TAN A RL LUCKNOW
AGRA YS
EA . OUDH
SI ND ST
IND CAWNPORE
RL
HYDERABAD YS IAN PATNA
KARACHI . BENARAS EASTERN BENGAL
ALLAHABAD EAST INDIAN AND ASSAM
RLYS. BENGAL
RANN OF CUTCH
MADHUPUR FARIDPUR
GUJARAT
BEN ERN

CUTCH C H OTA N AGPU R

AHMEDABAD
RLY AL

JUBBULPORE
ITARSI JUNC. HOOGLY
T
G

UPPER
EAS

S.

BARODA N
IN DIA S. CALCUTTA BURMA
& S. AT LY
KATHIAWAR GRE SULA R CANNING
DA RLY N IN
SURAT RO IA PE C E N T RAL P ROVI N C E S
ORISSA
BA D NAGPUR
Y- IN
BA AL
M TR AKOLA
BO EN
C B E RA R

BOMBAY
POONA H Y D E RA BA D
PE GRE
NI AT SHOLAPUR
NS IN
UL D
A I A WADI
RL N
YS
. RAICHUR

GUNTAKAL
BELLARY MAD JUNC.
RA
S
RL
Y
M A D RAS S.
RAILWAYS COMPLETED
MADRAS RAILWAYS UNDER CONSTRUCTION
.
BANGALORE S R LYS
A

M YS O R E
DR
MA

BEYPORE ERODE
GRE
AT S
OUT NEGAPATAM
CAR & HER
N N
ATIC
RLY
S.

C E Y LO N

Figure 2.3 Expansion of the railway network

Source: Bogart and Chaudhuri (2015b, Figures 9.1, 9.3)

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 2.3 Commercialization of Agriculture 55

NORTH KASHMIR
WEST
FRONTIER
PROVINCE
Indian Railways Map - 1931
AFGANISTAN

BALUCHISTAN

DELHI
UNITED NEPAL
RAJPUTANA PROVINCES BHUTAN

EASTERN BENGAL
AND ASSAM
KARACHI

GUJARAT
BENGAL
UPPER
CALCUTTA BURMA
CENTRAL PROVINCES

BOMBAY
HYDERABAD

ARABIAN SEA BAY OF BENGAL

MADRAS

MADRAS

CEYLON

Figure 2.3 (cont.)

on soil and climate suitability of crops. Regions that could produce cot-
ton, jute, or sugarcane increased their acreage under these crops and
bought food from other regions. It increased the volume of food traded
within the country. Figure 2.3 shows the expansion of the railway net-
work. The first railway lines connected ports to the hinterland, but over
time the network became denser and connected the interior. By 1930
the railways had connected large parts of the country and there were few
districts that did not have a railway line.

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 56 Agriculture as the Engine of Growth

2.4 Property Rights and Investment in Land

The colonial administration created property rights based on the British
experience, but the two environments were not comparable. By the mid-
dle of the eighteenth century most of the agricultural population lived at
subsistence level in India (see Chapter 1). British income in 1600, on the
cusp of the agricultural revolution, was twice as high as Indian income in
1750 (Broadberry et al. 2015). Who could be the entrepreneurial farm-
ers in India?
In the landlord regions, rents increased due to population pressure
and made it possible to extract a surplus without improving the qual-
ity of land. In the non-landlord regions, the cultivators did not have
the resources to invest in irrigation or other improvements or even to
buy inputs such as fertilizers. Individual cultivators had small hold-
ings and made decisions to invest in implements and cattle if resources
were available, but investment in irrigation was costly. The lack of for-
mal channels of credit and the failure of the landlords to undertake
improvements were institutional failures. The state could have filled in
this gap, but did not undertake large investments in agriculture in all
parts of the country. This is in contrast with East Asia and will be dis-
cussed in Chapter 6.
There are two measures of investment in land: availability of water
and availability of capital stock. Irrigation was mainly canals and wells.
Capital stock comprised of agricultural implements such as carts,
ploughs, bullocks, and cattle. Households required a plough to prepare
land for cultivation. Bullocks increased the efficiency of ploughing land
and were the most valuable capital asset. At least one pair was needed
for ploughing and bullocks pulled carts and provided manure as fertilizer
(Chaudhary and Swamy 2017). In times of distress or credit constraint
the cultivator would sell these assets.
Traditional techniques of keeping land fallow to regenerate soil ran
into constraints as population pressure intensified. There were some
changes in cultivation, such as double cropping or cultivation of differ-
ent crops in the same plot from one season to the next, in particular from
wet to dry season, which increased after 1920. But the share of double-
cropped land was small and varied across provinces. It was less than 5
per cent in Bombay and Sind, 10 per cent in Central Provinces, 15 per
cent in Punjab and Madras, 20 per cent in Bengal, and 25 per cent in
United Provinces (Blyn 1966, p. 190).
Manure was the most common fertilizer. Use of chemical fertilizers
was low and was applied mainly for the cultivation of cash crops. Tea
was the largest user. Pray (1984) found that the cost of fertilizers was

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 2.5 Irrigation: A Policy Failure? 57

too high in India relative to East Asia and, in the absence of irrigation,
it was not viable in most regions. The main technological change was
introduction of new varieties of higher productivity seeds in the culti-
vation of cotton, jute, sugarcane, and wheat. In 1922, the share of land
under better seeds was less than 2 per cent. In 1938, this had increased
to 11 per cent (Blyn 1966, p. 200). The crops that benefitted most from
new varieties of seeds were cash crops and 76 per cent of the sugarcane
acreage, 63 per cent of jute acreage. Thirty-five per cent of acres under
cotton used new varieties of seeds in 1938. For food crops, the share
was 7 per cent, with wheat being the main beneficiary (Pray 1984).
There were regional variations in this too. A large proportion of land in
Punjab and Sind adopted new varieties of seeds. The special position
of these provinces in agricultural production arose from the availability
of irrigation, which will be discussed in the following section. Irrigation
was to prove a key investment that led to productivity gains.

2.5 Irrigation: A Policy Failure?

Most regions of Asia, from South Asia to Japan, relied on seasonal
rains and therefore experienced periodic water shortage. Irrigation was
important to deal with water scarcity. In 1952, South, South-East, and
East Asia had 68 per cent of the world’s irrigated areas, of which 34
per cent was in China and 17 per cent was in India (Sengupta 1985).
The colonial government built one of the largest irrigation networks,
but this was available in only 20 per cent of the total cultivated land.
Irrigation canals were built in some regions, but not in others. The
expansion of land under cultivation came from increasing provision of
water. The areas in northwestern India, that were brought under cul-
tivation with the building of canals, became fertile land.
In pre-colonial India, irrigation was available in some regions. This
was mainly in the form of anicuts to divert water from the rivers and
tanks to store water. Sengupta (1985) refers to the irrigation tanks
discussed in Kautilya’s Arthashastra, written in third century BCE,
and the Grand Anicut built on the river Kaveri in the second century
CE. Habib (1982b, p. 49) mentions the Jamuna canal built by Feroz
Shah Tughlak. A few canals had been constructed or expanded in the
Mughal period from the Kaveri, Yamuna, and Indus rivers, but these
facilities were localized and did not cover much of the land that needed
irrigation. The population pressure on land was not comparable to the
situation in the nineteenth century, when rainfall shocks affected more

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 58 Agriculture as the Engine of Growth

Table 2.4 Land under irrigation (% share)

Percentage of area irrigated in 1936 by:

Area irrigated / Private Other

Total area sown Govt canals canals Tanks Wells sources

British India – 1886 16.5 29.9 4.0 19.0 37.8 9.3

British India – 1904 14.3 41.3 6.2 16.7 31.4 4.3
British India – 1913 17.8 39.0 5.5 15.0 27.1 13.4
British India – 1920 19.2 42.0 5.4 15.0 25.9 11.7
British India – 1936 19.7 46.1 7.5 11.7 24.8 9.9
Madras 24.2 43.2 1.7 36.0 16.2 2.9
Bombay 3.6 20.0 8.2 10.7 58.6 2.4
Bengal 5.8 12.9 12.9 44.5 3.7 26.0
UP 24.7 32.6 0.3 0.6 49.2 17.3
Punjab 47.2 67.5 2.8 0.2 28.6 0.9
Bihar 18.8 16.0 18.1 32.9 12.9 20.2
CP & Berar 4.9 0.0 82.7 0.0 12.3 4.9
Assam 9.0 0.1 53.1 0.2 0.0 46.6
Sind 78.7 90.0 0.3 0.0 0.5 9.3
Orissa 15.2 28.0 4.6 30.4 7.5 29.5

Source: Chaudhary et al. (2015, chap. 7)

people at a given time, increasing the possibility of famines. Therefore,

the pressure to expand irrigation was more compelling for the rulers in
the nineteenth century.
Under the colonial government, the five main irrigation zones were:
Punjab, Sind, Western United Provinces, Narmada Valley, and Coastal
Andhra. There were state and private initiatives to construct perennial
and inundation canals. Government canals were funded out of revenue
or from the capital account. Private canals could be financed mainly by
loans from the state government, but this accounted for a small share of
irrigation. Table 2.4 shows that state-built canals dominated. By 1936
government canals were the main source of irrigation, servicing 46 per
cent of the total irrigated area. Other irrigation facilities included storage
tanks and wells. Wells serviced 25 per cent of irrigated land in 1936 and
they were mostly private. Tanks were 12 per cent of the capacity. Private
canals covered only 8 per cent of cultivated land. While in Punjab the
share of irrigated land was close to 50 per cent and in Sind nearly 80
per cent, in provinces such as the Central Provinces and Bengal it was
around 5 per cent; it was even lower in Bombay. The large variation in
acreage under irrigation across states is shown in Table 2.4. Large tracts

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 2.5 Irrigation: A Policy Failure? 59

of land could be brought under cultivation in Punjab and Sind because

of irrigation. Nine perennial canal projects were set up in the sparsely
populated arid region of Punjab. Land grants were made available and
the canal colonies relied on migration from other areas to expand culti-
vation (Ali 1987).
The Nationalist critique was, first, that too little was spent on ­irrigation
relative to the railways, as the railways served the strategic interests of the
Raj, and second, that the government invested in irrigation to promote
the cultivation of cash crops. Sweeney (2011) has argued that the colonial
emphasis on railways was socially inefficient because of the link between
irrigation and agricultural development. Others, such as Whitcombe
(1972) and Agnihotri (1996), emphasize the adverse e­ cological effect
of canal irrigation in northwestern India. Ali (1987) points to the social
and economic advantages gained by the land-owning peasantry who
acquired occupancy rights and the Punjabi military veterans who were
rewarded with land allocation in the canal colonies. The canal colo-
nies did not address the socioeconomic inequalities of the region and
did not make land available to the landless agricultural workers. The
canals ­strengthened the caste and class hierarchies. While recognizing
the unequal access to irrigated land and the negative effect on ecology,
Stone (1984) has argued that irrigation canals raised yields. Stone com-
pares villages in the United Provinces that had canal or well irrigation
and finds that access to a canal increased crop intensity and diversifica-
tion and resulted in more continuous employment throughout the year
(pp. 111–123).
The Famine Commission of 1880 made a case for providing access
to water to increase the productivity of existing agriculture and to bring
new areas under cultivation in order to reduce the impact of droughts
and famines. However, rainfall and soil quality would determine where
irrigation would be useful and what type of irrigation was suitable. The
British built two types of canals: perennial canals in northern India and
inundation canals elsewhere, which filled when water overflowed from
the main rivers. In Punjab and Sind, where rainfall was uncertain, inun-
dation canals were filled by underground streams from the Indus, Sutlej,
and Chenab rivers during the monsoons.
The Famine Commission argued that estimated returns to irrigation
should include returns from higher crop output due to protection from
drought, the number of lives saved through famine prevention, and also
insurance against lost revenue and costly relief measures. Irrigation pro-
vided greater security against fluctuations in rainfall, increased output
per acre, and was conducive to a greater variety of crops to be planted.

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 60 Agriculture as the Engine of Growth

Table 2.5 Comparative yields per acre (lbs per acre)

Europe 1910 India 1911

Wheat yields Wheat yields Irrigated Non-irrigated

Spain 839 Punjab 898 555

Italy 856 Sind 1,340
France 1,178 North-West Frontier 874 559
Province
Germany 1,651 United Provinces 1,250 850
Sweden 1,891 Bombay 1,340 510
UK 1,909
Netherlands 2,132 India (weighted average) 1,037 679
Rice yields 1900
Japan 1,702 India 944
Indonesia 1,076

Note: European data is not disaggregated by irrigated and non-irrigated land

Source: Wheat: Agricultural Statistics of British India 1911 Europe: Bairoch
(1997); rice: Roy (2007)

The canals increased returns as cultivators could shift to higher-value

crops (Kurosaki 2003). The returns to irrigation were estimated to be
around 7 per cent, a decade after completion of the infrastructure. The
revenue stream in a year from capital outlay in irrigation in 1900 was
estimated at 12 per cent in Punjab, 26 per cent in Sind, 5 per cent in
United Provinces and Madras, with an average of 6 per cent for India
(Irrigation Commission Report 1901–03, p. 22). Thus, the expected
returns were higher than those from railways.
There was a large variation in expenditure at the province level. These
numbers do not consider the rainfall deficit in a province. However, there
is overwhelming evidence across regions that yield per acre was higher
on irrigated land. For food crops, such as wheat, yields on irrigated land
were higher and comparable to that in some European countries. The
average yield on irrigated rice fields in India in 1900, on the other hand,
was lower than in Japan and Indonesia (see Table 2.5). Most of the land
under rice cultivation was not irrigated.
At the same time, it is difficult to argue that irrigation served only the
interests of the colonial government and was motivated only by impe-
rialist concerns. Higher yields meant there were large private returns
on irrigated land. There is no evidence that irrigated land cultivated
mainly cash crops. Figure 2.4 shows that food crops and non-food

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 2.5 Irrigation: A Policy Failure? 61

1.2

1
Share of food crops in irrigated land

0.8

0.6

0.4

0.2

0
0 0.2 0.4 0.6 0.8 1 1.2
Share of irrigated land under cultivation
Series1 Linear (Series1)

Figure 2.4 Share of food crops on irrigated land (1920)

Source: Agricultural Statistics of British India

crops were cultivated on irrigated land and do not support claims that
only cash crops benefitted from irrigation. Irrigation increased yield
per acre in the first half of the twentieth century, but the constraint
was that it did not cover enough land and not enough was spent on it.
Therefore, irrigation did not raise output per acre for the country as
a whole.
Why did the colonial state not invest in agriculture? Investment rate
in colonial India was very low. The share of agriculture in gross capi-
tal formation was higher in colonial India than after independence, but
gross capital formation was only 6–7 per cent of GDP, compared to 13
per cent in 1951 and 24 per cent in 1991 (see Table 2.6). Therefore the
total outlay on agriculture was inadequate for building an agricultural
infrastructure for development. Investment in irrigation was low com-
pared to the railways (see Table 2.7). About 90 per cent of capital outlay
was spent on the railways and irrigation received less than 10 per cent.
From revenue, irrigation received 3–4 per cent of total spending. The
economic stagnation in colonial India was largely due to the failure to
build an adequate agricultural infrastructure.

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 62 Agriculture as the Engine of Growth

Table 2.6 Gross domestic capital formation

Share of Gross Share of

Gross fixed agriculture fixed agriculture
capital in gross capital in gross
Colonial formation in fixed capital Post formation fixed capital
period GDP formation independence* in GDP formation

1850–51 5.0 41.6 1950–51 13.1 19.06

1860–61 4.8 38.2 1960–61 17.7 11.1
1870–71 5.1 35.0 1970–71 19.7 11.6
1880–81 4.8 40.4 1980–81 20.8 11.5
1890–91 6.2 30.2 1990–91 23.7 6.1
1900–01 7.0 25.6
1910–11 6.6 23.3
1920–21 6.2 26.0
1930–31 6.3 22.1
1940–41 6.7 22.2

Source: Roy (1996, table 55, p. 347), *Dhawan and Yadav (1997),
Nagaraj (1990)

Table 2.7 Government spending on infrastructure: irrigation and

railways

Proportion of expenditure Proportion of gross expenditure

charged against revenue (%) charged against capital

Railways Irrigation Railways Irrigation

1894–95 23.4 3.1 87.2 12.8

1900–01 24.4 3.2 93.7 6.3
1910–11 15.5 4.1 90.3 9.7
1919–20 10.2 2.9 94.4 5.6
1935–36 15.2 3.2

Source: Chaudhary et al. (2015)

2.6 Commercialization and Prosperity

Did commercialization improve living standards for cultivators? I
showed in Chapter 1 (Figure 1.6) that from the middle of the ­nineteenth
century per capita growth was low but positive. The value of a­ gricultural
exports increased at 4 per cent per year between 1876 and 1913. With
­increasing commercialization and trade in agricultural products, in the
last quarter of the nineteenth century and the first decade of the twentieth

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 2.6 Commercialization and Prosperity 63

century, GDP growth was higher than population growth for a short period
of time. Most of the growth in the nineteenth century came from bringing
more land into cultivation and very little from changes in yield per acre in
existing land under cultivation. From 1910, agricultural output and GDP
per capita stagnated and this did not change until independence.
Evidence on yield per acre comes from the work of George Blyn (1966),
who documented changes in acreage and output at the district level from
1891. Blyn’s data shows overall stagnation, but big regional differences.
While there was an increase in productivity in dryland regions, in the fer-
tile, rain-fed areas, output stagnated or declined. More generally, yield per
acre in cash crops increased and declined in food crop. In wheat, how-
ever, there was an increase in some regions as a result of irrigation (see
Table 2.8). Punjab, with an extensive irrigation system, saw an increase in
land productivity. In rain-abundant, eastern regions, where investment in
irrigation was low, land productivity declined. Recent work by Kurosaki
(2017) confirms this pattern for the colonial regions of India, Pakistan,
and Bangladesh. The irrigated regions of northwestern India grew faster
than other parts of the country (Kurosaki 2017, pp. 29–31).
Table 2.9 shows the differences in growth in yield per acre across prov-
inces and by crop. Bengal shows a decline and Punjab and Madras, where
the share of irrigated land was higher, show some growth. Yield per acre
in rice declined. Yields grew in cash crops, such as cotton, sugarcane, oil-
seeds, and tea. The increase matched the rising demand from processing
industries, which developed rapidly after the First World War. However,
cash crops took up only a small proportion of cultivated land. In the 1940s,
cotton had the largest share at just over 5 per cent, sugarcane less than 2
per cent, and oilseeds less than 5 per cent. Most of the cultivated land
was used for food crops. Therefore, growth in agricultural productivity
depended on productivity of food production. There was a decline in yield
per acre in rice. The decline and stagnation in output of food grains had

Table 2.8 Changes in yield per acre, before and after independence (% per year)

Colonial period Post 1950

1891–1916 1916–1921 1921–1946 1950/51–1989/90 1989/90–2004/05

All crops 0.47 −0.36 −0.02 1.37 1.29

All food 0.29 −0.63 −0.44 1.60 1.27
All non-food 0.81 0.34 1.16 1.08 1.39

Source: Roy (2012) and Jha (2007)

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 64 Agriculture as the Engine of Growth

Table 2.9 Differences in growth in yield per acre by

region and by crop (1891–1946)

Regional variation in growth in Crop-level growth in yield

yield per acre (% per year) per acre (% per year)

Bengal −0.34 Rice −0.10

United Provinces 0.15 Wheat 0.36
Central Provinces 0.01 Ragi 0.12
Bombay and Sind 0.28 Cotton 0.95
Madras 0.65 Sugarcane 0.73
Punjab 0.63 Groundnut 0.23
Tea 1.45

Source: Blyn, G. (1966). Agricultural Trends in India 1891–

1947: Output, Availability and Production, Philadelphia,
University of Pennsylvania Press, Appendix 5A and 5B

serious consequences at a time when population growth began to increase.

Per capita food availability declined in the first half of the twentieth cen-
tury (Roy 2006, p. 82).

2.7 Railways and Famines

Access to railways could mitigate output shortfall in response to rainfall
shocks. The variation in prices of food grains across markets declined, as
discussed in a previous section. If output declined in a region connected
by a railway line then food grain could be transported from a region of
plenty. There was a decline in the number of famines in the first half of
the twentieth century.
For centuries, India experienced periodic famines when the monsoon
failed. Droughts led to crop failures and floods destroyed crops, which
led to cholera outbreaks. Wars also lead to famines. Many famines were
localized, but there were several years when famines were more wide-
spread. The first major famine under Company rule was in Bengal in the
1770s. Lack of rain caused crop failure on the fertile plain and famine:
one-third of Bengal’s population is estimated to have perished. High tax-
ation and other policy failures also played a role in this disaster (Datta
2019; Damodaran et al. 2019).
Bengal also experienced the last major famine of the British Empire in
1943. The Bengal Famine is a symbol of the negligence of the colonial
government. Despite the concerns expressed in the deliberations of the
Famine Commissions set up by the colonial government, military interests

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 2.8 The Interlinked Factor Markets in Agriculture 65

Table 2.10 Frequency of famines (1759–1947)

Number
of years
of famine Provinces affected

1759–1800 11 Bengal, Madras, Sind, Hyderabad, Bombay,

Gujarat, Rajasthan, Orissa, central India, Kutch,
NW Provinces
1801–1850 19 Bombay, central India, Rajasthan, Mysore, Bombay,
NW Provinces, Sind, Madras, Punjab
1851–1900 21 Madras, Rajasthan, NW Provinces, Punjab, Kutch,
Orissa, Hyderabad, Mysore, Gujarat, Bombay,
Madras, Bengal, Bihar, Central Provinces, Kashmir
1901–1947 5 Bombay, Madras, Bengal, Bihar, Central Provinces

Source: CEHI Visaria and Visaria (1983)

dominated humanitarian concerns in 1943. Four million people died in

what was seen as a man-made famine (Sen 1977). More recent work has
shown that there was a harvest failure that year (O’Grada 2008b). The
debate about whether the famine was a result of a shortfall in output
rather than diversion of food for the war effort when there was a plenti-
ful harvest is somewhat redundant in the context of public policy. In her
book Churchill’s Private War, Mukerjee (2011) documents the diversion
of food from a region of food shortage to meet the military needs of the
eastern front of the Second World War. Public policy not only failed to
move food from regions of plenty to regions of scarcity, it aggravated the
shortfall and bears responsibility for the last famine of the British Empire.
Famines, however, were less frequent in the twentieth century (see
Table 2.10). Recent work by Burgess and Donaldson (2010) shows that
when districts were connected to a railway line, it reduced the risk of a
famine when rains failed. Therefore, the Bengal Famine of 1943 stands
out as an example of a massive failure of public policy.

2.8 Credit Institutions: The Interlinked Factor

Markets in Agriculture
Credit, land, and labour markets became interconnected as land could
be used as collateral to borrow. Most cultivators relied on the informal
credit market for loans. In the event of a failure to repay the debt, the
cultivator could lose the land and become an agricultural labourer or
migrate to a new agricultural area or an urban centre. The caste-based
occupational structure interacted with the development of a market for

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 66 Agriculture as the Engine of Growth

land. It opened the door to transfer of land from the debtors to the
creditors and led to the growth of landless wage labour. Cultivators,
landlords and moneylenders belonged to different castes. Indebtedness
was not uncommon in the pre-colonial times as peasants borrowed
against contingencies, but land as collateral added a new dimension to
indebtedness.
Cultivators borrowed at the start of the sowing season when food
prices were high, and paid back after the harvest when food prices
were low. Interest rates in this informal market for credit were high.
Loans against crops to cultivators started at 9 per cent, but could
be as high as 50 per cent on informal short-term loans, known as
hand loans (Baker 1984, p. 285). The increasing commercialization
of agriculture changed the magnitudes of borrowing and repayments.
Cultivators in western and central India switched from barley and
millet to higher value crops, cotton, and wheat. When more arable
land became available for cultivating cash crops in western India,
urban moneylenders were often the source of credit. When the culti-
vators could not repay loans, land was transferred from the cultivators
to the moneylenders.
The nature of the credit market varied across regions. In Punjab,
indebtedness among the peasantry was high. Darling (1925) argued
that the prosperity of the Punjabi peasant also increased their credit
worthiness and the capacity to borrow. In 1929–30, the debt burden
of an average cultivating family in Punjab was at least three times that
of a similar household in Bengal, Bihar, and Eastern United Provinces
(Bhattacharya 1985). The capacity of repayment of the Punjabi peasant
was also greater.
The conflict between cultivators and moneylenders took on a caste
dimension. The Deccan riots of the 1870s involved Kunbis as culti-
vators and Marwaris as moneylenders. The cultivators involved in the
riots against the moneylenders targeted mortgage documents. It raised
some concern among the British policymakers about social unrest, and
the colonial government introduced laws to regulate usury. The Deccan
Agriculturist Relief Act was legislated in 1879. The Act restricted the
punishments that borrowers could face in case of failure to repay and
limited the amount of interest that could accumulate (Chaudhary
and Swamy 2017). Similar inventions followed in the Central Provinces
and at the turn of the nineteenth century the Punjab Land Alienation Act
of 1901 prevented non-agricultural castes from owning cultivable land
in Punjab. Conflicts between cultivators and moneylenders following
the Great Depression led to further legislation in Bengal and Madras in the
1930s. Banking enquiry committees in various provinces discussed the

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 2.8 The Interlinked Factor Markets in Agriculture 67

high interest rates charged by the moneylenders, which they found to

vary between 12 per cent and 40 per cent.
In the zamindari areas, class conflict took a specific form. The cultivat-
ing tenants did not have secure land rights and landlords could increase
rents arbitrarily. The tenants had the option to sublet to other cultivators
or sharecroppers. The British administration reacted to the possibility
of social unrest between the landlords and the cultivators in Bengal by
enacting the Bengal Rent Act of 1859, which gave tenants occupancy
rights after twelve years. There were loopholes in the Act that could
be exploited by landlords to evict the cultivator. For example, the ten-
ant did not necessarily cultivate the same plot of land over the twelve-
year period. The Tenancy Act of 1885, which gave occupancy rights
to the tenants even when they had cultivated different plots under the
same landlord, closed this loophole and put limits on increases in rent
(Swamy 2011).
In Bengal, there were two types of lenders: the trader–moneylenders,
who came from the trading castes, and the upper caste landlords them-
selves. When landlords became moneylenders, it created a debt–bond-
age relationship in interlinked credit and labour markets. The tenant
could become a bonded labourer. As the capacity of the cultivators to
repay loans collapsed with the Great Depression, the threat of peasant
revolts led to a series of legislations that were modelled on the British
Moneylenders Acts and attempted to provide a mechanism for debt set-
tlement and regulation of interest rates (Bose 1994, pp. 269–270). This
culminated in the Bengal Agricultural Debtors Act of 1935, which pro-
vided a regulatory framework for debt repayment.
In the Madras Presidency both landlord and non-landlord settlements
existed. Here too, the creditors could be the landlords or the merchants
(Baker 1984, pp. 238–240). Nath (2022) argues that moneylenders
rationed credit and charged higher interests in drylands compared to
the regions of rain-fed agriculture. Communities like the Chettiars were
the financiers of the rice trade. The Great Depression brought regula-
tion of moneylending in this region. Although the initial version of the
bill sought to regulate the interest rate, the law that passed, the Madras
Debtor’s Protection Act of 1937, only provided a mechanism for debt
conciliation (Baker 1984, pp. 302–303).
Colonial laws had paved the way for a market in land. The conse-
quences of introducing transferable property rights in land had far-
reaching effects and resulted in various legal interventions as well as a
growing class of landless agricultural labourers. The volatility in agricul-
tural incomes caused large migration flows, not only within the country
but also to distant parts of the British Empire as indentured workers

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 68 Agriculture as the Engine of Growth

(Persaud 2019). This was more prevalent in the non-landlord districts

(Aggarwal 2022, chap. 1). The primary objective of the land revenue
system had been to maximize revenue and create an enterprising class
of cultivators. As the economy changed, the importance of land revenue
declined and the growth in agricultural productivity remained an illu-
sion, except in some parts of the country.

2.9 Independence and a Change in Policy

Underinvestment in agriculture has continued to be a cause for concern
in independent India. However, there are some qualitative differences.
From 1950 growth in agriculture turned positive for the first time in half
a century. This coincided with a change in policy. The first plan, cov-
ering 1951/2–1955/56, explicitly targeted agriculture and emphasized
investing in irrigation to raise agricultural growth. Twenty per cent of
the planned outlay went to irrigation and 26 per cent to transport and
communication (Chakravarty 1987, table 2.9). This was intended to
rebalance the colonial spending pattern. Inaugurating the construction
of the Bhakra Nagal dam Jawaharlal Nehru, the first prime minister,
hailed it as a ‘temple of modern India’. The results of the emphasis on
agricultural infrastructure could be seen in a 30 per cent increase in agri-
cultural output over the plan period. However, the second plan shifted
the emphasis to industry and took attention away from the deeper prob-
lems of Indian agriculture and its ability to provide food security for a
growing population. The focus of policy returned to agriculture from
the late 1960s.
There were several significant policy inventions in agriculture. The
first was to reform the colonial institutions and the second was to bring
about technological change. I start with a discussion of the institutional
changes in agriculture and then discuss the interventions to raise agricul-
tural productivity.
Land reforms took three forms: the first was the abolition of the
zamindari system, the second was to provide secure rights to cultivators,
and the third was to impose land ceilings to break down concentration
of agricultural land (Besley and Burgess 2000). The objectives of land
reforms had been set out in the plans, but the specific interventions were
implemented by the provincial governments. The reforms were legis-
lated by the provinces at different points in time and the types of reform
varied. Besley and Burgess (2000) document the reforms enacted by six-
teen provinces between 1958 and 1992 and find a significant variation in
intensity of reforms. Most provinces had abolished the zamindari system
before 1958. In the landlord regions, the reforms aimed to strengthen

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 2.9 Independence and a Change in Policy 69

the rights of the tenants and subtenants as the cultivators. The reforms
imposed land ceilings in order to break up the large zamindari estates.
There is a consensus in the literature that the land ceiling was not
effective. It has been argued that the reforms allowed the zamindars to
retain a substantial amount of land for their ‘personal cultivation’, res-
ulting in millions of tenants and subtenants being evicted. Further, the
joint family system was used to divide the property into smaller units,
but still kept these within the family (Besley and Burgess 2000). Besley
and Burgess (2000) show that the higher the intensity of land reform, the
greater was the decline in poverty. This was mainly a result of the removal
of intermediaries and tenancy reforms rather than land redistribution.
The tenancy reforms were more widespread. Among them, Operation
Barga in West Bengal provided cultivation rights to share croppers. The
tenancy system in colonial Bengal had led to subrentals and widespread
sharecropping. These groups did not have secure rights to the land they
cultivated. Operation Barga, introduced by a left-wing government in
the state of West Bengal, aimed to give permanent and inheritable ten-
ure rights to the sharecroppers. The landlord could impose a maximum
of 25 per cent of output as rent. The take up was widespread and the
reform led to a rise in agricultural productivity in West Bengal (Banerjee
et al. 2002).
A second major intervention, and the source of the biggest shift in
agricultural productivity, was the Green Revolution of the late sixties. It
was a widespread introduction of high yielding varieties of seeds, starting
with wheat but expanding to other crops. After the severe droughts and
harvest failures of 1965/66, the Indian government had to turn to the
USA for food aid. This was a failure of the strategy of self-reliance and
seen as a national humiliation. The policymakers turned their attention
to raising agricultural productivity. The scientist who had led the search
for new technology in agriculture, Dr M. S. Swaminathan, got approval
to bring to India the high yielding varieties (HYV) of wheat and rice
that had been successful in Mexico and the Philippines. The first suc-
cess of the Green Revolution was visible in wheat cultivation and later
on spread to rice. The HYV of wheat and rice required more intensive
use of fertilizer and water. The Green Revolution increased agricultural
productivity and agricultural incomes, and had consequences for living
standards in rural India.
The success of this experiment in staple food crops was essential to
the policy of self-sufficiency in food. Its adoption was most effective in
areas with irrigation. Two supplementary policies encouraged adoption
of HYV of seeds – the minimum purchase price for food grains and the
subsidies on fertilizers and water use. The Green Revolution increased

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 70 Agriculture as the Engine of Growth

investment in agricultural infrastructure and subsidies towards inputs

(Fan et al. 2000). The irrigation canals of the colonial years and the
extension of irrigation in the first plan made northwestern regions of
India more conducive to the adoption of the new technology. Literacy
also mattered in the adoption of new technology. Take-up of HYV
of seeds was higher among households where members had primary
schooling, either due to the greater ease of adoption of the new tech-
nology or better access to information (Foster and Rosenzweig 1996).
The share of cultivated area planted with HYV of wheat in northern
India went up from an average of 10 per cent to 81 per cent between
1965–1969 and 1975–1979 and from 11 per cent to 82 per cent in rice
(Barker et al. 1985, p. 218).
Table 2.11 shows gains were made between 1950 and 1997 in differ-
ent crops. The largest increase came from the adoption of HYV of seeds
in wheat. Coarser cereals like jowar and bajra did not see big increases
initially. This was also true for cash crops like cotton and sugarcane. All
crops saw increases in yield per acre over time (see Figure 2.5). However,
despite the rise in yields, India still lagged behind the world average yield
per acre in rice, coarse food grains, and oilseeds (Renuka 2003).
The crop mix varied across regions and agricultural growth exhibited
big differences across regions and over time. Average annual growth in
agricultural output was over 2 per cent per year but varied by crop, as
shown in Table 2.12. From 1966 to 1981, the fastest growth in value of
output was in wheat, and in the 1980s in rice, but growth in both food
grains slowed in the 1990s when high value products such as spices,
fruits, and vegetables saw the largest increase (see Table 2.11). From
the mid 1960s to the early 1980s, the fastest growth was in the north-
western states, the first region to experience the Green Revolution, fol-
lowed by the west and south, while growth in the east was slower (Bhalla
and Tyagi 1989). In the following decade as the Green Revolution
spread, provinces in the east saw a big increase in growth, particularly in
West Bengal.
Kurosaki (2017) divides the districts of colonial India into these three
regions, India, Bangladesh, and Pakistan, and measures output growth.
He finds that all three countries grew faster after independence, but
Pakistan had the fastest growth. Dar (2019), using evidence from the
Green Revolution in India, shows that districts with colonial investments
in irrigation in 1931 adopted the new varieties more successfully and saw
rising yields. On the other hand, districts where canals were proposed
in 1857 but never built continue to have worse agricultural outcomes
more than a century later, despite being similar in dimensions of soil
suitability.

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 2.9 Independence and a Change in Policy 71

Table 2.11 Average annual growth in the value of

agricultural output

1950/51– 1966/67– 1981/82– 1991/92–

1965/66 1980/81 1990/91 2006/07

Rice 3.6 2.6 4.0 0.9

Wheat 3.4 6.4 3.2 1.4
Coarse grains 1.6 0.9 0.7 0.5
Oil seeds 2.5 1.4 5.4 0.7
Sugarcane 4.4 2.5 2.6 4.1
Spices 2.5 3.2 4.5 4.9
Fruits/vegetables 1.8 4.3 2.1 4.3

Source: Tripathi and Prasad (2009)

450.0

400.0

350.0

300.0
1950/51
KG/HA (1950/51=100)

250.0 1960/61
1970/71
200.0 1980/81
1990/91
150.0
1998/99

100.0

50.0

0.0
RICE WHEAT COARSE OILSEEDS COTTON SUGARCANE
CEREALS

Figure 2.5 Changes in yield per acre by crop: KG/HA (1950/51=100)

Source: Renuka (2003)

The Green Revolution needed a reliable supply of water. With the

Partition, a large proportion of the canal-irrigated land in Punjab and
Sind was in Pakistan. In 1950/51, the share of irrigated land in India
was 17.6 per cent.1 This increased to 19.3 per cent in 1965/66, 39 per
cent in 2000/01, and 47 per cent in 2012/13. The average annual rate

1
This is lower than the share of irrigated area in colonial India. A large share of irrigated
land was on the Pakistan side of the border.

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 72 Agriculture as the Engine of Growth

Table 2.12 Expansion in irrigation as a share of total cultivated land

Colonial Provinces Share of irrigated Indian Provinces Share of gross

1936 land 2000 irrigated land

Madras 24.2 Tamil Nadu 54.8

Bombay 3.6 Maharashtra 17.8
Bengal 5.8 West Bengal 55.5
United Provinces 24.7 Uttar Pradesh 71.6
Punjab 47.2 Punjab 96.5
Bihar 18.8 Bihar 68.5
Central Provinces & 4.9 Madhya Pradesh 25.7
Berar
Assam 9.0 Assam 4.4
Orissa 15.2 Odisha 28.9

Source: Table 2.4 of this chapter and Dutta (2017, table 7)

of growth of land under irrigation between 1965/66 and 2012/13 has

been 2.45 per cent in gross irrigated land and 2 per cent in net irrigated
land (Dutta 2017, pp. 97–98). The difference between gross and net
irrigation reflects the spread of multiple and double cropping. Well irri-
gation gained as a share of total irrigation, and the importance of canals
declined. In 1965, canals covered 42 per cent of irrigated land. From
the 1970s, private investment in tube-wells increased. In 2012/13, wells
accounted for 62 per cent of all irrigation, canals 24 per cent, and tube-
wells were over 80 per cent of well irrigation (Dutta 2017, pp. 98–100).
Table 2.12 shows the expansion in irrigation after independence. Bengal
had seen a decline in land productivity in the colonial period. This was
also a region with less than 6 per cent of land under irrigation. The
share of irrigated land was over 55 per cent in 2000 (see Table 2.12).
West Bengal’s Green Revolution followed the institutional change in the
rights of the sharecroppers, but the initiative of the local government in
making available new seeds, fertilizers, and other inputs also had a sig-
nificant impact on the adoption of new technology and increasing yields
(Bardhan and Mookherjee 2011). The institutional change was followed
by public and private investment in irrigation (Bardhan et al. 2012).
After decades of stagnation in colonial India, the eastern region of
West Bengal benefitted from land reform and investment in agricul-
tural infrastructure. In 2000, there was still some regional variation, but
Table 2.12 shows evidence of convergence. Provinces like West Bengal
and Bihar have seen significant changes. At the same time, the increase
in well irrigation has led to over-exploitation of ground water that has
contributed to the lowering of the water table.

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 2.10 Developmental Outcomes of the Green Revolution 73

There have been major changes in access to credit. Most agricultural

credit in the colonial period came from private moneylenders. After
independence, there was an expansion in lending by cooperatives, com-
mercial banks, and regional rural banks and the share of agricultural
credit from the formal sector in agricultural GDP increased significantly
from 0.5 per cent in 1950/51 to 3 per cent in the 1960s, 5 per cent in the
1970s, 8 per cent in the 1980s, and 10 per cent in 1999/2000. In 2003/04
it was 15 per cent (Mohan 2006). The change in the share of borrow-
ing from moneylenders by agricultural households broadly reflects this
change. Informal sector credit to agricultural households declined from
70 per cent in 1951 to 16 per cent in 1981 but increased to 27 per cent
in 2002 (Mohan 2006).

2.10 Developmental Outcomes of the Green Revolution

The Green Revolution directly increased agricultural growth and pro-
ductivity and raised incomes. It also increased inequality due to unequal
access to land and technology. The landed households benefitted more.
Cultivators with large and medium landholdings enjoyed a larger share
of the investment and subsidy. There could also be an indirect effect
on growth through an increase in non-farm rural activity. Foster and
Rosenzweig (2004a) found that growth in agricultural productivity did
not lead to more non-farm activity locally: this occurred mainly in areas
where the effect of the Green Revolution was weak. In these areas, the
landless unskilled workers benefitted from the expansion in non-farm
employment (Foster and Rosenzweig 2004b). Recent work by Asher
et al. (2022) find that the Green Revolution villages have not seen an
increasing share of non-farm activities, but the regional towns have seen
growth in non-farm industry.
There was a decline in the number of people living below the poverty
line from around 60 per cent before 1965 to 37 per cent in 1994. Fan
et al. (2000) consider different types of investment in the rural econ-
omy, such as research into agricultural technology, road building, educa-
tion, irrigation provision, and community development. They find that,
between 1970 and 1993, all categories of investment in rural communi-
ties contributed to higher agricultural productivity and lowered poverty,
and that the most significant poverty reduction came from agricultural
research and construction of rural roads.
The Green Revolution had a favourable impact on health outcomes.
Infant mortality declined in areas where a large share of land was devoted
to HYV of seeds between 1966 and 1998 (Bharadwaj et al. 2020). The
return to schooling increased significantly in areas of rapid technological

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 74 Agriculture as the Engine of Growth

change and resulted in greater private investment in schools in areas

of high adoption (Foster and Rosenzweig 1996). At the same time, it
increased inequality in education between households that owned land
and the landless (Foster and Rosenzweig 2004b). Children from landed
households withdrew from the market for child labour and were replaced
with children from landless households.

2.11 The Slowdown

Growth in land productivity began to peter out from the 1990s.
Agricultural growth in all regions slowed as yields declined. The fac-
tors that had held back agriculture in colonial India continue to hamper
progress in recent years: low public investment in irrigation and water
management, and underinvestment in scientific research. The ecological
crises of lowering the water table and soil degradation had serious conse-
quences for the sector (Bhalla and Singh 2010). In 1950, agriculture
contributed to half of GDP but employed over two-thirds of the work-
force. In 1999, the contribution of agriculture to GDP was less than a
quarter, but it employed over half of the workforce.
The share of agriculture in gross capital formation was 20 per cent in
1950/51, but declined sharply from the 1980s (see Table 2.6). Although
total public spending in agriculture was much larger than in the colo-
nial period, it was only 15 per cent of total public investment at its peak
(Balakrishnan 2010, p. 117). By the 1990s, it had declined to 6 per
cent (Dhawan and Yadav 1997). Agricultural policy after the Green
Revolution has focused on subsidies on water, electricity, and fertilizer.
Since two-thirds of the land is owned by large- and middle-sized farmers,
the policies to raise productivity have mainly benefitted these groups.
Large groups of the agricultural workforce did not gain from the Green
Revolution.

2.12 Conclusion
Colonial policies did not lead to prosperity in agriculture, although India
became a part of the international division of labour with Britain and
exported agricultural goods. Land under cultivation expanded over the
nineteenth century and there were increases in land under cotton and
sugarcane. For most crops, yield per acre was lower in 1910 than in 1600
(see Table 2.2), although we do not know precisely when the decline
began. Table 2.9 shows the growth rate in yield per acre in different
periods from 1891, when reliable agricultural statistics became available
(Blyn 1966). The stagnation after 1916 was driven by a decline in land

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 2.12 Conclusion 75

productivity in food crops. Productivity declined in eastern India but

increased in the canal-irrigated regions of the north-west. The declining
yield per acre in food grains also meant that there was less food available
per head of the population.
Declining land productivity was due to a lack of investment in irriga-
tion, availability of better quality seeds, and fertilizers.2 Roy (2007) sees
this as an ecological crisis arising from various types of market failures
to improve quality of land. The new systems of land ownership and tax-
ation, introduced by the British, did not lead to the expected invest-
ment in land. The landlord system of taxation that sought to incentivize
landowners to carry out improvements in land failed to deliver. Yields
fell in the rice-growing areas under the landlord system. Cultivators in
both landlord and non-landlord systems were too poor to make large
investments and needed some mechanism to ease the credit constraints
faced by small cultivators. Colonial India did not have the institutions to
provide credit to cultivators, who were dependent on local moneylenders
with high interest rates for any type of credit. Lack of access to affordable
credit meant there was no local private investment in land improvement.
The colonial state built irrigation canals. This was one of the larg-
est networks in the world, but only 20 per cent of land under cultiva-
tion was irrigated in 1935. There was large variation across regions and
the regions with a high share of irrigated land had higher yields (see
Table 2.5). Irrigation canals made it possible to increase land under cul-
tivation, but also increased output per acre through a shift to higher-value
crops (Kurosaki 2003). Yield per acre for food crops, such as wheat on
irrigated land, was higher across different regions and comparable to
European levels. The average yield on rice fields in India in 1900 was
lower than in Japan and Indonesia (see Table 2.5).
Although the lack of investment in agriculture had consequences
for growth, the contribution of the railways in connecting markets and
allowing movement of food to regions of scarcity cannot be underesti-
mated. By the end of the nineteenth century, India had a large railway
network and the literature shows unequivocally that the railways inte-
grated markets. Not only did price gaps across markets decline (Hurd
1975; Donaldson 2019), the railways also reduced the incidence of fam-
ine (Burgess and Donaldson 2010) and increased agricultural incomes
in districts with access to a railway line (Donaldson 2018). There were
large social savings too as railway transport was more efficient compared
to the alternatives (Bogart and Chaudhary 2015b). But the railways had
little impact on agricultural productivity and the lack of investment in

2
The contrast with East Asia is discussed in Chapter 6.

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 76 Agriculture as the Engine of Growth

agricultural infrastructure had far more serious consequences for the

economy in the early twentieth century than deindustrialization did in
the nineteenth century. Agricultural stagnation in colonial India was
only reversed with new policies in independent India (see Table 2.3).
The reversal of agricultural stagnation was one of the main achieve-
ments of the first decades after independence. It started with the poli-
cies of extending irrigation and was boosted by the Green Revolution.
Both public and private investment in infrastructure increased in abso-
lute terms as the share of investment in GDP increased. However, with
market-based economic reforms, the emphasis has shifted away from
productivity-enhancing investments in agriculture and many of the prob-
lems that agriculture faced in the colonial period have resurfaced. The
water crisis and environmental degradation in India today echo the eco-
logical crisis that Roy (2007) discussed in the context of the early twen-
tieth century.

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 3 From Handlooms to Modern Industry and
the Emergence of a Planned Economy

An important debate in Indian economic history is the decline of the tra-

ditional textile industry in the nineteenth century. It is viewed by many
as a consequence of India’s integration into the British Empire and the
imposition of free trade, contributing to India’s economic decline. From
being a dominant producer and exporter of cotton cloth in the seven-
teenth and eighteenth centuries, India became a net importer of British-
manufactured cotton cloth in the nineteenth century. As industrial
employment declined, India integrated into the international economy
of the British Empire as a supplier of food and raw material. The nine-
teenth century is characterized by deindustrialization as the handloom-
based cotton textile industry declined. The term ‘deindustrialization’
was coined by historians in the context of the decline of this traditional
cotton textile industry, well before the term was used to describe the
declining share of manufacturing in industrialized economies of the
twentieth century as industrial jobs disappeared and the service sector
became more important in employment and GDP. In the Indian con-
text of the nineteenth century, this was a decline in the share of indus-
trial employment as people lost their livelihoods and moved back to
agriculture.
Several changes occurred simultaneously in nineteenth-century India.
Handmade textiles lost their position in the world market, agricultural
exports increased, and the contribution of industry to the GDP and
employment declined. However, at the same time as the jobs in the tradi-
tional industry disappeared, new industrial jobs became available. These
jobs were in the newly emerging modern industries that used new types
of technology, borrowed from Europe.
In this chapter I ask the following questions: Did colonial policy lead
to deindustrialization? How did the new industries develop in a colonial
economy? Who were the investors and who were the entrepreneurs? What
was the role of colonial policy? How did Indian industrialization during
the colonial period impact on developments after independence? Was
there continuity or change? I will focus on policies towards industries in

77

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 78 From Handlooms to Modern Industry

India before and after independence and their impact on the industrial
sector. I start with the nineteenth-century deindustrialization and go on
to discuss a unique pattern of industrial development in the second half
of the century that occurred in the absence of a supportive state and was
led by the social networks of Indian trading communities.

3.1 Deindustrialization
Traditional technology was used in India to produce good quality cot-
ton fabrics: muslin and calico. The former was sold in the luxury end
of the market and the latter was for regular use. These products experi-
enced a big rise in demand in the international market with the arrival
of European trading companies in India–British, Dutch, French, and
Danish in the seventeenth century. The companies contracted with the
weavers, typically through middlemen, to produce cloth of a given size
and design within a period of eight to ten months. The weavers were
given a cash advance to buy raw material and food and deliver the fin-
ished textile products to the agents of the European trading companies.
The textiles were exported to Europe and the rest of the world and dom-
inated these markets. The English East India Company (EIC) became
a key player in this market along with the Dutch East India Company.
The companies established settlements and production centres, first in
the western parts of India, then in the south, and finally in Bengal in the
east, to buy textiles for export.
In return, India imported bullion. To raise the cash advance paid to
the weavers, the companies, including the EIC, borrowed heavily from
Indian merchants and bankers. The house of the merchant Jagat Seth
was one of the main lenders to the EIC and assisted them in the con-
quest of Bengal. In 1757, the ruler of Bengal was defeated by the EIC
and Bengal came under Company rule. The purchase of textiles was
now funded by land revenue from Bengal. This opened up a new phase
in the Company’s commercial enterprise in India: the EIC set its goal
to colonize other regions and by the middle of the nineteenth century, a
large part of the country had come under its rule. The EIC continued to
trade in textiles during this time, but the textile trade had begun to lose
its importance well before the Company’s trading monopoly in India
ended.
The external environment of the textile trade had changed in the
decades following the conquest of Bengal. The industrial revolution
in England dramatically transformed international trade in textiles.
Machine-made British goods were cheaper than handloom-based Indian
cloth and British yarn and cloth flooded the world market. It is arguable

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 3.1 Deindustrialization 79

that the technological revolution in spinning and weaving in cotton tex-

tiles did not happen without assistance from the British state. Faced with
protests from the local producers of woollen and silk textiles against the
entry of Indian textiles in the British market, the British government
raised tariffs on these imports from the 1690s. In 1700, the first Calico
Act banned import of printed calico for sale in the British market. White
calico could still be imported for printing locally and printed calico could
be imported for re-export to other markets by the EIC. In 1721, the sec-
ond Calico Act banned sale of all calicos in the British market (O’Brien
et al. 1991). Thus, the British state that implemented free trade in the
nineteenth century used tariffs and import bans to create conditions for
the development of an import-substituting industry.
The high demand for imported cotton textiles has created condi-
tions for import substitution in Britain, but the conditions of develop-
ing an import-substituting cotton textile industry in Britain borrowing
labour intensive technology from India did not exit. British wages were
five times the Indian wages (see Chapter 1) and the labour intensive
technology used in India would not have given the British industry an
advantage in early eighteenth century. High wages (Allen 2009) and use-
ful technical knowledge among the workforce (Mokyr 2009) provided
conditions for developing a new labour-saving technology. Once labour-
saving spinning and weaving processes were developed, the new tech-
nology of the industrial revolution gave Britain an advantage over India
in the cost of production. The weaving technology in India had changed
little over centuries (Habib 1976). Innovation tended to take the form of
new weaving designs and new types of dyeing (Ramaswamy 1985). The
spinning technology in India was the charkha, an equipment for hand-
spinning that was operated mainly by women as a part-time activity. The
invention of the flying shuttle in Britain changed the technology of spin-
ning in a major way, giving British spinners a big advantage.
Tables 3.1 and 3.2 show the emergence of British advantage in textile
production. Table 3.1 compares the advantage of a spinning machine in
Britain over the hand-spinning equipment used in India and Table 3.2
illustrates the reversal of the competitive advantage in the textile market
from India to Britain. Table 3.1 shows that, in 1780, Crompton’s mules
required one-fifth of the working hours to process the same quantity of
raw cotton into yarn. By the end of the century, this had declined to
one-tenth of the working hours in India. The rapid decline in the time
to process cotton into yarn continued with successive new inventions.
India had another advantage over Britain. Raw cotton was produced
locally in India. Initially input costs were higher in Britain, as wages were
high and raw cotton was expensive. The Napoleonic Wars drove cotton

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 80 From Handlooms to Modern Industry

Table 3.1 Best-practice labour productivity in spinning

80s yarn in England (1780–1825) (operative hours to
process 100 lb) in comparison to traditional technology
in India in the eighteenth century

India eighteenth century Hand-spinning 10,000

Britain 1780 Crompton’s mule 2,000
Britain 1790 100 spindle mule 1,000
Britain 1795 Power-assisted mule 300
Britain 1825 Roberts’ automatic mule 135

Source: Broadberry and Gupta (2009)

Table 3.2 Emergence of British comparative advantage: relative

total factor input cost, price, and total factor productivity

Total factor input cost FOB Total factor

(TFICBr/TFICIn) price (PBr/PIn) productivity(TFPBr/TFPIn)

1680 206 200 203

1770 289 209 144
1790 357 150 238
1820 150 43 349

Source: Broadberry and Gupta (2009)

prices even higher, but when they ended, the cost of importing raw cot-
ton declined. Cotton was imported from the American South and use of
slave labour on the American plantations allowed British industry to nar-
row the price disadvantage. The new literature revisiting the role of slav-
ery in providing a plentiful supply of raw cotton to Britain has revived
the thesis of Eric Williams on the importance of slavery in the industrial
revolution (Beckert 2015). This discussion remains outside the scope of
this book.
As the quality of machines improved, British producers gained an
advantage in total factor productivity. With labour-saving technology, the
British firms produced a larger output per worker and newer machines
enhanced this advantage. By 1820, the efficiency gains and the declining
raw cotton prices reduced the manufacturing cost of textiles in Britain
well below the Indian price.1 As Table 3.2 shows, British prices of tex-
tiles were twice as high as Indian prices in 1770, one and a half times in

1
This calculation does not factor in the role of slave labour on cotton plantations in keep-
ing prices low.

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 3.1 Deindustrialization 81

1790 and, by 1820, 35 per cent of Indian prices (Broadberry and Gupta
2009). Table 3.2 shows the relative decline in total factor input cost in
British industry and the relative increase in total factor productivity. This
advantage, by 1820, was large enough for British goods to make inroads
into the Indian market.
Bengal was the main production centre for the textile trade in the mid-
dle of the eighteenth century, but only 9–11 per cent of the total indus-
trial workers in textile production in Bengal produced for the textile trade
(Prakash 1976). The decline in textile production resulted in the loss of
the international market and also the loss of market share in the home
market to British goods. Ray (2009) explores the decline of the industry
in Bengal and argues that 28 per cent of textile workers lost their jobs
between 1830 and 1859. This is large for the sector, but the share of
the sector in total employment was small. Ray (2011) suggests that, if
Britain had not imposed tariffs on Indian products between 1795 and
1826 in response to the demand from British textile interests, the price
disadvantage faced by Indian goods in the British market might have
been delayed. However, by 1826 tariffs no longer protected the British
industry. Instead the machines of the industrial revolution enhanced
the comparative advantage of British goods in the international market.
Broadberry and Gupta (2009) find a similar timeline in the decline of
Indian traditional industry in terms of the shift in competitive advantage
from India to Britain.
The deindustrialization of Bengal has been documented by Bagchi
(1976) based on evidence of industrial employment in Bengal in 1811
and in 1901. The decline in the share of the workforce in industrial occu-
pations was large. Twomey (1983) shows that, during the period of 1850
to 1880, there was an absolute decline in industrial employment. Over
50 per cent of the full-time equivalent jobs in textiles had disappeared.
Whatever the estimate of unemployment in this sector, economic histo-
rians agree that the traditional textile industry lost its place in the glob-
alized economy and that there was a significant decline in industrial jobs
and thousands of industrial workers moved to agricultural occupations.
The impact was particularly large in areas where the textile industry had
a significant share in employment. However, measuring societal gains
and losses does not suggest that all groups lost out.
As a colony, India did not have tariff autonomy. A b­ ack-of-the-envelope
calculation based on Table 3.2 would suggest that a tariff rate of
133 per cent on yarn might have stopped imports from flooding the
Indian market for some time. However, Indian consumers gained
from lower prices of imported cloth. Cloth consumption per capita
increased from 5.2–6.7 sq. yards in 1795 to 8.2 in 1880 and 13.5 in

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 82 From Handlooms to Modern Industry

1920 (Roy 2012). The rising cloth consumption coincided with dein-
dustrialization and was mainly due to cheaper imports rather than ris-
ing income. Handloom weavers benefitted too. The first segment of
the traditional industry to decline was spinning, as handloom weavers
switched to imported yarn. The Indian handloom industry lost out to
British imports initially, but, after 1880, also faced competition from
products of the newly developing modern textile industry that used
imported British machinery.
The emerging modern industries added some dynamism to the indus-
trial sector. The traditional industries survived in niche markets and
reinvented their technological skills (Roy 2006, pp. 192–195). The share
of British cotton cloth in the Indian market declined from 60 per cent
in 1880 to 51 per cent in 1900 but by 1930 British goods supplied only
one-third of the market (Twomey 1983). The share of the large-scale
sector rose from 8 per cent to 15 per cent between 1880 and 1900 and
continued to rise at the expense of the handloom sector (Tomlinson
2013, p. 90). It has been estimated to account for 44 per cent of the mar-
ket in cotton cloth in 1920, rising to 62 per cent in 1940. The handloom
sector continued to contract and stabilized at a market share of 25 per
cent (Roy 2006, p. 195).

3.2 Rise of Modern Industry

From 1850, machinery was imported from Britain to set up a modern
cotton textile industry in western India and a modern jute textile indus-
try in eastern India. The location of the two industries was partly deter-
mined by proximity to raw material and partly by the social composition
of commercial interests in the regions. The main cotton growing region
was in the hinterland of Bombay and the jute was mainly cultivated in
the hinterland of Calcutta. Calcutta was the hub for British businesses.
Bombay, on the other hand, had a strong representation of Indian trad-
ing communities in the commercial sector.
British investment in and around Calcutta was in three sectors: tea,
jute, and coal. All three sectors served colonial interests in the export
market or supplied to the railways. Britain was the main market for Indian
tea and it was a common item in the British consumption basket. Jute
products were used as packaging for transport and sandbags in wars and
floods. An industrial or commercial firm could be registered in Britain as
a Sterling company or in India as a Rupee company. Sterling and Rupee
companies were defined by the place of registration rather than owner-
ship. A large share of the tea companies were set up as Sterling compa-
nies in London and the investors were British, but a sizeable group of

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 3.2 Rise of Modern Industry 83

firms were British owned and registered in India and were run by British
management companies. Jute firms were set up mainly in India as Rupee
companies, with a few set up as Sterling companies in Britain. Coal min-
ing firms were mainly registered in India. Investors in the Rupee compa-
nies came from both Britain and India and many expatriate British men
and women in India owned shares in these companies. Systematic infor-
mation on the social background of the shareholders is difficult to get.
Information from one jute firm in Calcutta shows that, of the 119 share-
holders in the jute firm in 1874, 105 were ‘Christian’2 and the rest from
Indian communities of Bengali, Marwari, Muslim, and Parsi (Rungta
1985). A similar pattern was also true for a British-owned cotton textile
firm. Where the firms were registered did not matter. British firms in
tea, jute, and coal were managed by a few British managing agents, an
institutional innovation in several Asian countries that were colonized
by Britain.
Managing agents were typically British firms that owned shares in sev-
eral companies, both Sterling and Rupee, and were responsible for their
management. They provided the initial capital and their reputation was
useful for selling shares to potential investors. Contrary to an earlier liter-
ature, Nomura (2014) shows, on the basis of archival evidence, that the
managing agents had majority shareholding. The managing agents con-
tributed to the concentration of economic power in the hands of a few
companies across several industries. The Investors India Year Book of
1911, which published information about companies registered in India,
shows that eight managing agents controlled 55 per cent of the jute com-
panies, 61 per cent of the tea companies, and 46 per cent of the coal
companies (Bagchi 1972, p. 176).
The cotton textile firms were set up as Rupee companies in India.
There were a few British firms in this industry, but an overwhelming
majority of entrepreneurs were Indians, as were the investors. This casts
doubt on claims by Max Weber (1967) and Vera Anstey (1929) about
the cultural disadvantage of Indians in entrepreneurship. Max Weber
wrote in The Religion of India: The Sociology of Hinduism and Buddhism
(1916):
Capitalism would remain weak in India because the ancient religions of India
have no element of the Protestant ethic, a necessary element for the growth
and development of capitalistic thoughts. (Mishra S.K., Kamal K.K. (2014)
Capitalism in the Indian Social Environment: An Ethnic Perspective. Palgrave
Macmillan, London)

2
British in this context.

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 84 From Handlooms to Modern Industry

Table 3.3 Sterling and Rupee investment (1914–15) (£m)

Sectors Sterling Rupee Total

Tea 19.7 2.9 22.6

Cotton 0.4 13.0 13.9
Jute 2.7 7.8 10.5
Gold 2.3 0.3 2.4
Cotton and jute press 1.2 1.2 2.4
Total 27.4 29.0 56.9

Source: Chapman (1992)

Table 3.3 shows such claims do not have empirical validity. By

1914, there was significant Indian investment in cotton textiles, sec-
ond only to tea plantations set up with British investment. British
investment was concentrated in the export industries like tea and
jute, while Indian investment dominated the import substituting
industry of cotton textiles (Morris 1983; Gupta 2014). The com-
mercial world of Bombay and Calcutta was segregated by industry
and social networks.
How did Indian entrepreneurs develop a local cotton textile indus-
try that could compete with Lancashire? The industry developed with-
out supportive government policies that were available in many other
countries in Europe and North America. Even attempts to put tariffs
on British imports of cotton goods for revenue purposes were met with
resistance from the textile interests in Lancashire, the centre of the
British industry. These interests successfully lobbied for countervailing
excise duties to be imposed on cotton textile goods produced in Indian
factories. The United Cotton Manufacturers’ Association of the North
and North-East and Lancashire Cotton Spinners’ and Manufacturers’
Association lobbied Parliament in 1895, confident that they could sway
policy in their favour:
We do not ask, nor do we require any favourable consideration, but we do ask
that if for purposes of revenue, either now or at any other time, the imposition
of import duties is essential, that they shall be imposed equally on the products
of India with those of Lancashire. Justice to India must not mean injustice to
Lancashire. Their interests are identical, and an injustice cannot be imposed on
one without being reflected on the other. The cry of ‘Perish India!’ meets with
no response in Lancashire, for with the prosperity of India our interest is bound
up; but as the custodians of the welfare of the cotton trade, on which the pros-
perity of Lancashire depends, we cannot allow its interests to be sacrificed to the
Indian mill-owners …

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 3.2 Rise of Modern Industry 85

We believe that our interests can be safely entrusted to you, and we look with
confidence to your decision, which we feel will be such as will assist in renewing
prosperity to our industry by restoring to us the right of free and equitable trading.3

The cost of establishing a cotton mill in India was three times that of
an equivalent mill in England and the cost of borrowing was five times
higher (Oonk 2001).4 The entrepreneurs came from community-based
trading networks that had accumulated wealth in pre-industrial activ-
ities, such as trade and informal banking, and the community became
the source of capital for the industry. The commercial sector in India
had comprised of caste and religious subgroup-based networks of trad-
ers and indigenous bankers. These communities were defined by occu-
pational specialization, where skills and jobs passed from father to son.
Endogamous marriage cemented the social and economic interactions.
The trading communities in the Bombay region were the Parsis, the
Hindu communities of Vanias and Bhatia, Jain Vanias, Khoja and Bohra
Muslims, and the Baghdadi Jews. These groups had amassed wealth
from various commercial activities, such as selling opium to China and
raw cotton to Britain, shipping in the Indian Ocean, trade with West
Asia and East Africa, and moneylending. Profits from the opium trade
had declined after the Opium Wars in China. The American Civil War
of the 1860s increased demand for Indian cotton and trading groups in
western India invested heavily in trade in raw cotton. Raw cotton was
purchased from the cultivators and baled for export. When the civil war
ended and profits from the cotton trade declined, many of the traders
turned to industry.
Gupta et al. (2022) studied the pattern of entry into the cotton tex-
tile industry in the aftermath of the American Civil War, using data on
individual entrepreneurs. They found a strong concentration of mem-
bers from the same community as directors in a firm. Figures 3.1A
and 3.1B show the concentration of directors in firms by community
in the regions of Bombay and Ahmedabad, where the early cotton mills
were set up. When an entrepreneur joined a firm as a director, an over-
whelming majority of the other directors of the firm were fellow com-
munity members, indicating that an entering director was more likely
to trust a member of his community with his investment. The timing
of entry also indicates the presence of strong community connections.
In the trading world of the Indian merchants in the nineteenth century,
social connections had been the main source of information and contract

3
Papers relating to the Indian Tariff Act 1896 and the Cotton Duties Act 1896.
4
Based on the annual report of the Bombay Millowners’ Association (1879, p. 44).

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 .
Figure 3.1A Community concentration at entry in cotton textiles firms
in the Bombay region (1860–1910)

Figure 3.1B Community concentration at entry in cotton textiles firms

in the Ahmedabad region (1860–1910)
Source: Gupta et al. (2022)

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 3.2 Rise of Modern Industry 87

Figure 3.2 Community concentration at entry in jute textiles firms in

the Calcutta region (1914–1930)

enforcement. When industrial firms were set up, community networks

played a role in mitigating problems of contract enforcement and draw-
ing resources for investment in the absence of well-functioning legal and
credit institutions and a supportive state. Community connections were
the means of capital accumulation and growth in the domestic cotton
textile industry.
Similarly, when Marwari traders entered the British-dominated jute
industry in Calcutta after the First World War, community connections
were important. During the war, profits rose in export industries such
as jute, used for gunny bags at the frontline. Share prices rose in jute
firms and many shareholders of the Rupee companies sold their shares
to the Marwaris. The Marwari traders in Bengal controlled the trade in
raw jute and had close connections with British firms. A few firms were
also set up by the Marwaris during and after the war. Among the Indian
entrants, the Marwaris dominated. The concentration of community
ownership in firms was lower than in cotton textile firms as entry was via
share transfers in British firms (Figure 3.2). Looking at these two major
industries, the role of community networks in early industrialization in
India is of particular interest.

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 88 From Handlooms to Modern Industry

The First World War changed the external environment for industries
catering to the domestic market. The natural protection provided by
the war allowed the import substituting industries to prosper. The first
successful iron and steel factory had been set up before the war by Parsi
entrepreneurs from the Tata family, and went into production during
the war. The war was also advantageous for other large-scale factory
industries, such as breweries, paper manufacturers, cement manufac-
turers, and sugar refineries. When the war ended, these industries could
form interest groups to lobby for protection. The interwar years saw
the establishment of the first tariff commission and protection of local
industries.

3.3 Railways and Industrial Development

At the heart of the British policy for modernization of India was the rail-
way network. From the middle of the nineteenth century, the British
government in India guaranteed a rate of return on investment in British
railway companies that entered the Indian market. Shares and bonds
were mainly sold in the British market with a guaranteed rate of return
of 5 per cent per year. In contrast to 51,519 British shareholders, there
were only 368 Indians (Morris 1967). The rate of return on railway
investment, though attractive to a British investor, was much lower than
returns for the commercial activities of Indian traders. The private rail-
way companies had a twenty-five-year window of private ownership and
could be nationalized thereafter. Indeed, this happened from the middle
of the 1880s, with the government taking over both ownership and oper-
ation of the railway lines or having public–private partnerships (Bogart
and Chaudhary 2015a).
Although the railway lines initially developed in response to pressure
from British business to connect ports to the hinterland, the lines spread
rapidly across the country, creating a dense network, and 52 per cent of
British Indian districts were connected to a railroad by 1881. By 1901
this had increased to 87 per cent and by 1921, 96 per cent were con-
nected (Chaudhary and Fenske 2020).
Being connected to a railway line had several positive consequences:
it integrated markets across India and reduced price dispersion (Hurd
1975); increased trade and income in districts connected to the railway
network (Donaldson 2018); and the connected districts were less vulner-
able to weather shocks (Burgess and Donaldson 2010), as pointed out in
Chapter 2. However, railway construction in India did not have the same
effect on industrialization as in Germany and the USA, where backward

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 3.4 Interwar Years: Tariffs and Industrial Development 89

and forward linkages led to the development of other ­industries. The

backward linkages developed local production of iron and steel and
­rolling stock. In the Indian case, most of the rolling stock was imported
from Britain. Between 1865 and 1940, local industry manufactured 700
locomotives and imported 12,000 (Hurd, 1983). The coal ­industry was
a linkage sector and sold 30 per cent of output to the railways (Hurd,
1983). Railway workshops trained local workers, who became skilled
at repairing rail stock, but the railways did not lead to widespread
­development of related industries.

3.4 Interwar Years: Tariffs and Industrial Development

The First World War brought changes in colonial policy towards
local industries. Industrial activities increased during the war and
domestic firms engaged in import substituting activities strengthened
their position. The connection between Indian businesses and the
Nationalist movement concerned the British government in India. It
generated support for policies that would protect the industrial sec-
tor (Lockwood 2012). The Industrial Commission of 1916–1918, an
inquiry into the viability of local industry, made a case for protecting
nascent industry. The Fiscal Commission of 1923 recommended set-
ting up a tariff board that would look at individual industries on a
case by case basis for protection rather than a general tariff. Industries
that had developed during the war, such as iron and steel, found it
hard to compete with imports once the war ended and demanded tar-
iffs. Tariffs were imposed on imported cotton goods from 1921, for
revenue purposes. Other new industries also received some tariff pro-
tection, but the industrial interest groups wanted more (Tomlinson
2013, pp. 111–112). The tariff board reviewed individual cases by
industry and raised tariffs on eleven sectors, including cotton textiles,
iron and steel, paper, sugar, matches, and chemicals. In the 1930s,
several industries benefitted from new tariffs or an increase in the
tariff rate.
Changes were introduced in stores’ purchase policy of the govern-
ment of India, that decided where equipment for public projects would
be purchased. Before the war all machinery and equipment for public
projects was bought in Britain, and the contracts for purchases were
coordinated in Britain. The office relocated to India to coordinate
the procurement for public investment and contracted with local ven-
dors of chemicals, metals, and construction materials (Roy 2018, pp.
127–128).

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 90 From Handlooms to Modern Industry

Protection of the iron and steel industry was at the core of tariff pol-
icy in the interwar years. A few engineering industries that used iron
and steel became eligible for tariffs, but this was not a systematic policy
for developing manufacturing capability in capital goods. Wagon build-
ing was protected, but locomotive production was not. These decisions
were made by the tariff board on the basis of the difference in the cost,
insurance, and freight inclusive (c.i.f) price of imported products and the
locally manufactured goods (Bagchi 1972, pp. 338–351).
Britain’s position in international markets was undermined by the
war and Japan had emerged as a competitor in the Asian markets.
To regain its market share in the colonies, Britain gradually moved
towards a policy of discriminating protection, that would allow British
goods preferential access in the colonial markets. This would impose a
disadvantage on Japanese textiles in the Indian market. The policy was
implemented as the Imperial Preference Agreement in 1932 and coun-
tries outside the Empire paid higher tariffs to export to the colonies.
In India, tariff on textiles from outside the Empire was 50 per cent,
while British goods paid 25 per cent (Markovits 2002, pp. 51–52).
Sugar that was imported from Java had supplied 85 per cent of the
Indian market until 1932. The local industry saw a massive expansion
as prohibitive tariffs were applied to sugar imports from outside the
Empire (Markovits 2002, p. 58). TISCO, the iron and steel produc-
ing firm, increased its market share from 25 per cent to 75 per cent
between 1929 and 1939 (Markovits 2002, p. 59). Arthi et al. (2024)
found that, although tariffs lowered imports over all, Britain gained at
the expense of other countries from the trade diversion effect of dis-
criminating protection.
The increase in textile production in India during the First World
War had been based on existing capacity. When the war ended, there
was a large increase in imports of textile machinery (Bagchi 1972, p.
258). The cotton textile industry began to expand in locations out-
side the main centres in Bombay and Ahmedabad, where wages were
lower. In the new locations new entrepreneurs came from different
trading communities. The industrial base began to spread beyond
the Presidencies of Bengal and Bombay, although the two remained
dominant.
The entry of new firms and the increase in industrial output was
driven mainly by Indian entrepreneurs. The profitability in trade and
moneylending had declined during the Great Depression and regula-
tion of the informal credit market gained legal legitimacy in several
provinces, as discussed in Chapter 2. Investment in industry became

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 3.4 Interwar Years: Tariffs and Industrial Development 91

attractive to members of trading networks. New groups of entrepre-

neurs outside Bombay and Calcutta gained visibility in industry: the
Chettiars in the South; the Punjabi Hindu Bania, Lala Shri Ram in the
North; and the Marathi Brahmin, Kirloskar in the West. Much of the
initial investment by Indians had been in textiles but the new entre-
preneurs diversified into other sectors too. Although no specific sup-
port for industries producing machinery was available, a few individual
entrepreneurs took up the challenge. Kirloskar was among the few.
Diversification became the route to technological upgrading for Indian
business interests.
The Kirloskar brothers offer an unusual case of a family firm that
moved early into machinery production. Unlike most other industrial
entrepreneurs, the Kirloskars did not come from a trading background
and members of the second generation had formal engineering degrees
(Tripathi and Mehta 1990). The other new business group, Shri Ram,
came from a trading community in Punjab and was initially involved in
cotton textiles. The group diversified into sugar and light ­engineering
in the 1930s (Tripathi 1987, p. 8). There were a few British firms that
manufactured white sugar before the First World War but of the new
firms in the interwar period were founded by Indians. Names familiar in
Indian industry after independence – Singhania, Dalmia, and Thapar –
started with sugar mills, but diversified to other ­sectors (Tripathi 2004,
pp. 194–197; Roy 2015, pp. 135–140). The coal ­companies, which were
mainly British owned, saw Indian capital enter in the 1930s. The import-
substituting industries made gains in the ­interwar years and consolidated
their position during the Second World War.
The Chettiars are a good example of the shift from banking to indus-
try. Although they had some presence in the industrial sector, their
main entry into industry was in the 1930s, when their business of pro-
viding credit for rice cultivation in Burma was adversely affected. As
the indebted Burmese peasantry could not repay their loans and faced
losing their land, the Chettiars faced hostility from the agricultural pro-
ducers (Kudaisya 2010) and looked for alternative opportunities. A
large part of their new investment was in the Madras Presidency and
in textiles, but they invested in other sectors too, such as rice and oil
mills, chemical manufacture, potteries, and sugar refining (Mahadevan
1978; Rudner 1994). This was also the time when the Birlas, one of the
dominant industrial groups after independence, diversified from trade
to industry. The family moved into textiles, sugar, and paper, and less
successfully into textile machinery just before the Second World War
(Tripathi 1987).

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 92 From Handlooms to Modern Industry

18,000

16,000

14,000

12,000
Million Rs.

10,000

8,000

6,000

4,000

2,000

0
1900-01
1901-02
1902-03
1903-04
1904-05
1905-06
1906-07
1907-08
1908-09
1909-10
1910-11
1911-12
1912-13
1913-14
1914-15
1915-16
1916-17
1917-18
1918-19
1919-20
1920-21
1921-22
1922-23
1923-24
1924-25
1925-26
1926-27
1927-28
1928-29
1929-30
1930-31
1931-32
1932-33
1933-34
1934-35
1935-36
1936-37
1937-38
1938-39
1939-40
1940-41
1941-42
1942-43
1943-44
1944-45
1945-46
1946-47
Mining Large-scale manufacturing Small-scale industry Secondary sector

Figure 3.3 Growth in industry (1900–1947) in million Rupees in

1938/39 prices
Source: Sivasubramonian (2000)

The balance between large and small industries began to change.

Figure 3.3 illustrates that, by 1946, they had equal shares in indus-
trial output. Large-scale manufacturing drove industrial productivity
growth over this period. Manufacturing output increased two and a
half times in India between 1913 and 1939, well above the world aver-
age but behind Japan, where manufacturing output increased by a fac-
tor of five (CEHI 1983, p. 609). Although both India and Japan had
set up a modern cotton textile industry during the last decades of the
nineteenth century, by the 1930s India did not compare favourably
with Japan, not only in terms of rate of industrial growth, but also in
terms of diversification of the industrial sector. Japan developed inter-
mediate goods and machinery industries, while India lagged behind.
Productivity in the Japanese cotton textile industry had been compa-
rable to the Indian industry in 1890, but by 1910 Japan had an advan-
tage and it widened in the interwar years. But Japan’s industrialization
was exceptional.
In the interwar years, there was growth and diversification of India’s
industrial sector. Figure 3.4 shows the fast rise of new industries such
as sugar, cement, matches, and iron and steel, while growth in textiles
plateaued. The jute industry faced a major crisis when the wartime

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 3.4 Interwar Years: Tariffs and Industrial Development 93

Table 3.4 Shares of subsectors in net output in modern manufacturing

1913/14 1938/39 1939/40 to 1946/47

Cotton textiles 36.2 29.9 23.2

Jute manufactures 15.0 8.0 5.3
Refined sugar 1.6 3.4 4.1
Paper products 0.4 0.5 0.6
Cement – 1.0 1.1
Woollen cloth 0.3 0.3 0.5
Iron and steel 0.8 4.4 3.6
Matches – 1.2 0.8
Other 45.7 52.2 60.8
Net value of large-scale manufacturing 635 1701 2258.5
output in 1938/39 prices (Rs million)

Source: Morris (1983) (CEHI) table 7.22

10,000

1,000
Output in log scale

100

10

1
1900-01
1901-02
1902-03
1903-04
1904-05
1905-06
1906-07
1907-08
1908-09
1909-10
1910-11
1911-12
1912-13
1913-14
1914-15
1915-16
1916-17
1917-18
1918-19
1919-20
1920-21
1921-22
1922-23
1923-24
1924-25
1925-26
1926-27
1927-28
1928-29
1929-30
1930-31
1931-32
1932-33
1933-34
1934-35
1935-36
1936-37
1937-38
1938-39
1939-40
1940-41
1941-42
1942-43
1943-44
1944-45
1945-46
1946-47

Cotton textiles Jute Sugar Paper Cement

Woollen Iron and steel Match All manufacturing

Figure 3.4 Growth of subsectors in the modern manufacturing industry

Source: Sivasubramonian (2000)

demand for hessian disappeared. The changing shares of the subsectors

and an increase in the share of new industries is shown in Table 3.4.
The net value of large-scale manufacturing increased rapidly.

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 94 From Handlooms to Modern Industry

3.5 British Firms in the Interwar Years

Firms in the old export industries that were owned by managing agen-
cies did not adjust to the new environment. The managing agents who
controlled and managed these did not diversify into new industries, a
path that was taken by Indian business groups. The new form of British
investment at this time was foreign direct investment. British multina-
tional corporations entered the Indian market in the changing economic
situation and in response to tariffs. Their involvement was in new import
substituting industries such as machinery, food, tobacco, and chemicals
(Tomlinson 1981).
The two major British-owned export industries faced excess capac-
ity after the First World War in a situation of declining demand. Their
response was to organize cartels that would reduce production. The car-
tels in tea and jute sought governmental support to legislate in favour of
the cartel. The outcomes of the two cartels were very different. In tea,
output had increased during the war and there was excess supply in the
1920s. The Indian Tea Association made a big push to develop a market
in India. However, with the onset of the Great Depression, the inter-
national tea prices declined sharply. An international tea cartel formed
in 1930 involving the producers in India, Ceylon, and the Netherland
Indies, the three main producers, to stabilize prices. The cartel was
successful in reducing output and preventing further decline in prices
(Gupta 1997, 2001). The cartel fell apart in 1931/32 and was recon-
stituted in 1933. The governments of the three countries were lobbied
to bring in export quotas that reduced exports by the existing compa-
nies and deterred new entry. The Indian Tea Association was a power-
ful lobby and successfully influenced policy in favour of the cartel. Tea
prices recovered. The older and more established tea companies were
the beneficiaries. The cartel was also successful in preventing new pro-
duction in countries outside the cartel with a ban on the export of seeds.
The jute industry similarly faced an excess capacity as the war ended:
demand for jute in the international markets had collapsed after 1929
and did not recover until the onset of the Second World War. The
value of exports was 40 per cent of its 1929 level in 1934 (Bagchi 1972,
p. 280). The industry responded by forming a cartel that reduced
working hours all through the 1920s. However, this cartel faced a sig-
nificant challenge from a group of new entrants, who remained outside
the cartel (Goswami 1982; Gupta 2005). They were new Indian firms.
The entry of the Marwari traders into the boardrooms of the British-
owned jute companies during and after the First World War, as dis-
cussed in a previous section, signalled a major change in the ownership

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 3.5 British Firms in the Interwar Years 95

and development of the industry. The Indian firms increased produc-

tion, leading to acrimony between British and Indian firms (Goswami
1982). The jute interests did not get the same support from the gov-
ernment in Delhi. The Montagu–Chelmsford reforms in 1919 had
increased provincial autonomy, and political representation through
elections made the provincial political groups mindful of the interests
of the cultivators, traders, and emerging Indian industrial groups, and
not just of British business.
The managing agents of the British firms had enjoyed social and
­political privileges, and had lobbied the colonial state for favourable
policies. They had excluded Indian business from the industrial
­
­associations, such as the Bengal Chamber of Commerce. In a more
competitive environment they were unable reinvent themselves and
move into the new sectors. Influential managing agents such as Bird
and Company, dominant in jute and coal, found it difficult to enter in
the new industries as the business environment changed (Tomlinson
1981). British business groups like Parry’s and Binnys in the south were
connected to import-substituting sectors, such as sugar and textiles,
(Tripathi 2004, pp. 211–213).
A new type of British firm succeeded and established their positions
in the growing industrial sector. British multinational companies like
Unilever, Guest Keen Williams, Metal Box, Philips, and Dunlop, took
advantage of the protected environment and entered the Indian market.
So too did multinational companies from other countries, such as Bata
Shoes, Siemens, and General Electric (Tripathi 2004, pp. 219–220).
The Indian firms that took advantage of the new environment were more
willing to cooperate with the new foreign companies. Collaboration
between Indian and British entrepreneurs emerged in consumer goods,
such as Britannia Biscuits, and intermediate and capital goods produced
by Martin Burn and Indian Standard Wagon (Roy 2015, p. 142).
The Second World War consolidated the position of Indian indus-
trial groups. The Tatas emerged as the largest business group, operat-
ing in sectors as diverse as textiles, iron and steel, and chemicals, and
the new entrants began to spread across the new industries. The Indian
Nationalist movement’s connection with industrial interests grew stron-
ger through the different phases of resistance to British rule. On the
eve of Indian independence, the Indian-owned modern industrial firms
had a significant presence and there were a number of industrial groups
that provided effective industrial entrepreneurship. The traditional and
small-scale industry did not disappear. It catered to niche markets and
adapted to the changing technological environment (Haynes 2012).

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 96 From Handlooms to Modern Industry

3.6 Planning and Industrialization

As India moved from colonial rule to independence, regulation rather
than global connections became a tool for industrialization, with the
public sector playing the leading role. Jawaharlal Nehru, the first
prime minister in independent India, put industry at the heart of the
development strategy. India was among other countries in the devel-
oping world, including Brazil in Latin America and South Korea and
Taiwan in East Asia, that saw state intervention to support industrial-
ization as a pathway to development. Imposing controls on trade was
at the centre of this policy. Trade, often described as a ‘handmaiden of
colonialism’, was associated with the lack of industrial development.
Regulation in post-independence India went further and adopted the
Soviet model of planning industrial development in order to develop
a capital goods sector, which had been missing in the colonial period.
This was laid out in the Second Plan (1956–1961). The Mahalanobis
model, named after its architect, the statistician Prasanta Chandra
Mahalanobis, divided the economy into two sectors: capital and
consumer goods. To raise the investment rate, the economy had to
increase its production of capital and intermediate goods that would
affect the rate of growth of all sectors. Therefore, capital goods pro-
duction had to be prioritized.
The framework of the Mahalanobis Model is one of unbalanced
growth, where the capital goods sector was to generate linkages with
other sectors and pull the economy out of a low growth equilibrium
(Ray 1998, pp. 142–143). Balakrishnan (2010, p. 42) argues that the
strategy to raise public investment followed Rosenstein–Rodan’s the-
ory of big push to move an economy out of stagnation. Gross domestic
capital formation as a share of GDP during the colonial period had
been 6–7 per cent. Following the Second Plan, gross domestic capital
formation as a share of GDP rose to 19 per cent by the late 1960s. The
public sector stepped in as a producer and its share rose dramatically
from 25 per cent in 1950 to 50 per cent in 1980 (see Table 3.5) The
share of manufacturing in gross fixed capital formation rose over this
period. Capital formation in manufacturing rose faster than in other
comparable countries initially, but this advantage was short lived as
South Korea and Taiwan raised their investment rate and India began
to fall behind (see Table 3.6).
Why did the government not rely on the private sector? In colonial
India, there were a few private entrepreneurs producing iron and steel,
and engineering. Several did not survive. Balakrishnan (2010) dis-
cusses the coordination problem for private entrepreneurs, who were

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 3.6 Planning and Industrialization 97

Table 3.5 Capital formation and the public sector

Gross domestic capital

formation as share of GDP Share of the public sector

1850/51 5.0* 2.24*

1880/81 4.8* 25.21*
1900/01 7.0* 21.59*
1920/21 6.2* 32.68*
1940/41 6.7* 19.81*
1951–1955 13.1 (11.6*) 25.0*
1956–1960 17.3 –
1961–1965 17.7 43.2
1966–1970 19.3 39.2
1971–1975 19.7 40.2
1976–1980 21.2 45.2
1981–1985 20.8 51.4
1990–1995 23.7 38.4
1995–2000 24.8 29.2

Note: * Refers to the ratio to Gross National Income in 1980/81 prices

Source: * Roy (1996) (tables 46, 52, 55) Post 1951: Nagaraj (1990),
Kohli (2004, 2006)

Table 3.6 Share of manufacturing in gross fixed capital

formation (%) in a comparative perspective

Share in gross fixed capital formation

1950 1960 1970 1980 1990

Brazil 13.0 8.1 19.7 13.8 13.5

South Korea 13.6 15.0 17.0 28.3 32.3
Taiwan 19.5 23.5 36.1 29.0 25.7
India 11.6 27.8 27.5 12.5 10.4

Source: Amsden (2001, tables 6.3)

not certain about the future rates of return (pp. 64–65).5 The emerg-
ing ­capitalist class in 1950 was shaped by the social networks of trad-
ing communities that had ventured into industry. Many sections of
the business community had supported Congress in the struggle for

5
Rodrik (1995) discussed the coordination problem for South Korean entrepreneurs in
the 1960s and 1960s and the role of government intervention. The particular policies
differed in the context of South Korea.

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 98 From Handlooms to Modern Industry

independence and were involved in the drawing up of the Bombay Plan

of 1944, a plan for e­conomic development after independence. The
plan was drawn up by the Congress party in consultation with Indian
entrepreneurs, and put investment in industry as the driver of growth
(Rothermund 1993, pp. 123–124).6 The signatories included J. R. D.
Tata, Ghanashyam Das Birla, Lala Sri Ram, Kasturbhai Lalbhai, and
Purushottamdas Thakurdas, the founder of the industrial association
representing Indians, the Federation of Indian Chamber of Commerce
and Industry (FICCI). Even when the Indian business interests were not
in complete agreement on specific policies, there was no disagreement
on protecting the market for Indian producers and controlling foreign
investment (Roy 2018, p. 148).
The Second Plan introduced regulation of industrial investment by
demarcating the areas of public and private investment. Private entrepre-
neurs had to apply for licenses to invest in an industry. Several industries
of strategic interest, as well those producing capital and intermediate
goods, were out of bounds for the private sector. The emphasis was on
reducing dependence on imports and self-sufficiency in industrial out-
put. The plan used quantitative controls, such as import licences and
quotas, rather than tariffs to regulate foreign trade. Unlike in many other
newly industrializing economies, such as Brazil and in East Asia, multi-
ple exchange rates were not used to protect some sectors and allow easy
imports in others. The Rupee remained overvalued and built in an anti-
export bias. The competitiveness of Indian traditional exports declined
and the products of the new industries could not compete in the world
market. Exports grew at 2.3 per cent between 1950 and 1973, well below
the growth in world exports at 7.9 per cent per year. Exports/GDP ratio
declined from 7.1 per cent in 1951 to less than 3 per cent in 1965.
The motivation to industrialize was not unusual. Alexander Hamilton
in the USA and Fredrich List in Germany had made a case for tariffs
to support industrialization in the nineteenth century. They had argued
that economic prosperity and national prestige depended on industri-
alization. Colonial India had been dependent on Britain for industrial
goods, particularly on capital goods. The Second Plan transformed the
industrial sector away from this dependence. The production of basic,
intermediate, and capital goods grew faster than the production of con-
sumer goods until 1965. The picture was to change after 1980 when
intermediate and consumer goods industries, in particular durable con-
sumer goods, became the fastest growing sectors (see Table 3.7).

6
Chibber (2003) has a different view and argues that the Indian business interests were
opposed to the level of state intervention that was inherent in the Bombay Plan.

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 3.6 Planning and Industrialization 99

Table 3.7 Annual industrial growth by sectors (1951–2004) (%)

Capital Intermediate Consumer Durable Total

Basic goods goods goods consumer output

1951–1955 4.7 9.8 7.8 4.8 5.7

1955–1960 12.1 13.1 6.3 4.4 7.2
1960–1965 10.4 19.6 6.9 4.9 9.0
1965–1976 6.5 2.6 3.0 3.4 6.2 4.1
1981–1991 8.0 5.3 11.2 8.9 12.0 6.5
1981–1998 8.0 6.7 10.7 9.1 12.5 5.8

Note: Basic goods refer to basic materials used in production and are intermediate goods
Source: Kelkar and Kumar (1990) and Nagaraj (2003b)

As in the case of import substituting industrialization, the initial

growth spurt petered out once substitution of imports had progressed.
Without a strategy to break into the world market, the high levels of pro-
tection made the industrial sector uncompetitive and dependent on the
domestic market (Bhagwati and Desai 1970). Total factor productivity
growth in manufacturing was negative over the period 1959/60 to 1979/8
(Ahluwalia 1991). The processing of licenses created rent-seeking activ-
ities as industrial interests lobbyed for licenses. Despite the problems
associated with the regime of regulation, a critique of the economic pol-
icy in the first decades of independence must also consider the colonial
legacy and the environment in which these policies were made.
The slowing down of economic growth after 1965 brought about a
change in the direction of economic policy. Trade policy switched from
relying on quantitative controls to price based controls and import quo-
tas were replaced by tariffs in the 1980s. There were significant changes
in industrial policies. Industrial licensing that had created barriers to
entry for the private sector was removed, opening up most sectors to
private investment. The reforms of the 1980s are seen as ‘pro-business’
(Rodrik and Subramanian 2005; Kohli 2006). Rodrik and Subramanian
(2005) argue that the removal of the constraints on the private sector
made it more dynamic and in a position to take advantage of the new
opportunities. Manufacturing became the fastest growing sector in the
1980s and there was an increase in productivity growth in m­ anufacturing
(Ahluwalia 1991). Wallack (2003) found that the increase in GDP
growth was due to a changing composition of GDP, as resources moved
away from slow-growing towards faster-growing sectors of the economy.
However, the industrial sector did not emerge as the largest sector, either
in GDP or employment, and was overtaken by the service sector by the
1990s as the driver of economic growth, as I will discuss in Chapter 4.

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 100 From Handlooms to Modern Industry

3.7 From Business Communities to Business Groups

In 1947, several communities dominated the industrial space. The roles
of the Parsis, the Bhatias, and the Bohras in cotton textiles and the
Marwaris in jute have been discussed earlier in the chapter. A few among
them, such as the Tatas and Birlas, went on to build large business con-
glomerates. These groups had been involved in different segments of the
industrial sector in the interwar years. After 1947, a few of these family
firms developed into industrial houses.
The family-based business groups have been at the centre of Indian
industrialization. Their entry into industries in the nineteenth century
used community connections, as individuals belonging to the same
community made an occupational transition from trade to industry as
a group. For the family-based business groups that emerged as industry
leaders, diversification after the First World War may have been the key
to their success. They typically owned shares across industries and had
financial and entrepreneurial control. Sarkar (2010) defines a business
group in India as ‘an agglomeration of privately held and publicly traded
firms operating in different lines of business’. Most of them first entered
into cotton textiles, jute textiles, or sugar and gradually diversified into
more technologically sophisticated industries. The family firm of the
Birlas is illustrative of this diversification. The group moved from jute
and cotton textiles to the production of textile machinery and automo-
biles before 1947 and to aluminium, cement, and chemicals thereafter
(Roy 2018, pp. 135, 174).
Michael Kidron (1965) documented the entry of Indians on the well-
guarded boards of British firms. From a share of 5 per cent of directors
on boards of jute companies in 1911, the figure rose to 51 per cent in
1950, in coal firms it went from 5 per cent to 54 per cent, and in tea
companies from 5 per cent to 32 per cent. In 1920, 85 per cent of the tea
companies had no Indian directors on their board. By 1950, 40 per cent
had at least one. In other industries, Indian entry was even more dra-
matic, with 88 per cent of the coal companies having no Indian directors
on their board in 1911. In 1950, this was the case for only 10 per cent of
the firms. For jute companies the share of companies with no Indian dir-
ectors declined from 84 per cent to just 2 per cent (Kidron 1965, p. 40).
Under the new policies after independence, British firms were
required to register in India and gradually hand over majority share-
holdings to Indians. The firms most affected were controlled by British
managing agents and were in the export industries. Many of them sold
shares to the Indian business groups, others were nationalized (Roy
2018, pp. 190–191). The tea companies, as a major export earner,

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 3.7 From Business Communities to Business Groups 101

Table 3.8 Top ten business groups by assets (1939, 1958, 1981, 2000)

1939 1958 1981 2000

Tata Tata Tata Reliance

Inchcape Birla Birla Tata
Andrew Yule Martin Burn Mafatlal Essar Ruia
Finlay Dalmia Sahoo Jain Singhania Birla
E D Sassoon Bird Heigler Thapar Larson and Toubro
Martin Burn Andrew Yule ICI Jindal
Bird Bangur Sarabhai PRPG Enterprises
Associated Cement Thapar Associated Cement Bajaj
Killick Singhania Bangur Thapar
Gillanders Sri Ram Sri Ram Mahindra & Mahindra

Source: Markovits (2002, p. 192); Roy (2018, p. 171); Sarkar (2010)

retained a special position. The multinational foreign firms that catered

to the domestic market were less affected by the changed economic
environment. Within two decades of independence, the industrial
­sector came to be dominated by Indian business groups and public
sector corporations.
Table 3.8 shows the changes in the top ten business groups.
In 1939, these groups were mainly British managing agency houses
that ­ controlled companies in tea, jute, coal, and other industries.
There were two Indian firms on this list, Tata and Sassoon, both of
which originated in the cotton textile industry in Bombay in the nine-
teenth century. By 1958, the list was dominated by Indian family firms,
although managing agents Bird and Company and Andrew Yule were
still dominant in industry. By 1980, the top ten business groups were
Indian with the exception of the multinational corporation Imperial
Chemical Industries (ICI). Table 3.8 also shows some churn over the
next twenty years and the ­emergence of new names. Among them, the
success of the Reliance group stands out. However, Tata has remained
in the top ten since the colonial period and a few of the business
groups, such as Birla and Thapar, which came to prominence in the
1950s, have also maintained their ­position. ­Caste-based community
networks have continued to play a role and certain ­communities dom-
inate in specific industries, for e­ xample the Gounders in the garment
industry in Tirupur (Banerjee and Munshi 2004). The transition of
Kathiawaris from agriculture to the ­export-oriented ­diamond indus-
try used the community network for ­occupational mobility (Munshi
2011).

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 102 From Handlooms to Modern Industry

Did the special position of the business communities give them an

advantage under the policies of regulated industrialization? I have dis-
cussed at the beginning of this chapter the importance of social networks
in industrialization when state intervention was missing. In the context
of regulation, the business groups used the regulatory system to their
advantage. During the period of 1956–1966, the top twenty business
groups were able to take advantage of their organization to secure 41 per
cent of the industrial licenses (Chibber 2003, p. 191).
The role of the multinational corporations (MNC) in India has never
been as important as in some other parts of the world. The successive
governments have put more restrictions on the functioning of MNCs
than domestic firms. The economic reforms of the 1980s were more
advantageous for the domestic firms. Collaboration with foreign firms
was permitted in joint ventures or under technology transfer agreements,
and the Foreign Exchange and Regulations Act of 1974 capped ­foreign
equity holdings at 40 per cent (Nagaraj 2003a). The ‘­ pro-market’ reforms
after 1991 opened the door to foreign direct investment in industry
and consumer durables and communications were major beneficiaries.
India’s share of world foreign direct investment went up from 0.5 per cent
to just over 2 per cent in the 1990s, but has remained small ­compared to
that of China (Nagaraj 2003a).

3.8 Management Practices

The management structure that emerged in colonial India was the man-
aging agency system. It was first adopted in British firms, but Indian
firms used it too. A British managing agent was a British firm that owned
shares in firms across industries and had administrative control. The
industries were mainly tea, jute, and coal. The managing agents reduced
risk by diversifying across industries. They transferred funds across firms
as and when required. The managing agent also enjoyed a reputational
advantage in selling shares of new companies. This institution fits in with
the ideas in the recent literature, which suggests that new ventures rely
on the brand name of a business group to signal reliability when insti-
tutions are weak (Maurer and Sharma 2001). However, the economic
power of the managing agents led to an oligopolistic market structure
in several industries. A handful of agents such as Andrew Yule, Bird
and Company, and Shaw Wallace owned or managed the major export
industries, and this made cartelization possible (Gupta 1997, 2001,
2005). Managing agents dominated industrial associations and operated
as a political interest group to lobby for various privileges. The import-
substituting Indian firms, based on community connections, evolved as

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 3.8 Management Practices 103

community-based business groups. They too adopted a variant of the

managing agency system and diversified risk by having ownership and
control of several firms across sectors.
The management structure in colonial firms was a source of ­inefficiency.
The management structure in British firms differed from that in Indian
firms in one important aspect. Most directors in Indian firms came from
trade and had little technical knowledge regarding i­ ndustrial activities. The
management of textile firms consisted of three tiers. The first tier were
entrepreneurs, who typically came from trading ­communities, many of
whom did not have technical training or formal higher education. The sec-
ond tier was made up of technicians, who, initially, were mainly British or
Parsi (Rutnagur 1927; Oonk 2001). The third tier were labour recruiters.
The labour recruiters came from rural areas and used their community
connections to recruit workers. Kiyokawa (1983) suggests that the lack
of technical knowledge among Indian entrepreneurs and managers led
to poor managerial decisions on choice of technology. The adoption of
British technology rather than the more efficient American technology is
one example. The failure to introduce double shifts, as in Japan, is another
(Gupta 2011). The British and Indian firms across different sectors used
labour recruiters, and most of the workers were recruited in the rural areas
through community connections. Linguistic barriers between managers,
technicians, and workers may also have played a role in generating ineffi-
ciencies in communication and transmission of knowledge.
The managerial inefficiency of family-based business groups has been
discussed in the context of more recent developments in Indian indus-
try. Khanna and Yafeh (2007) show that, between 1990 and 1997, one-
third of Indian firms were affiliated to a business group. This share is
lower than that in Indonesia, South Korea, and Taiwan in the 1990s and
Japan in the 1930s. The recent literature on comparative management
practices shows that, although in emerging economies such as India and
Brazil there are many well managed firms, their average rank in terms of
managerial practices is lower than that of most industrialized countries.
Family firms with a family chief executive officer have low management
scores. Three-quarters of Indian firms fall in this category, a much higher
proportion than in advanced economies (Bloom et al. 2010). A related
view comes from Caselli and Gennaioli (2013). They argue that dynas-
tic management may reduce a firm’s total factor productivity due to less
talented managers. The literature on the measurement of total factor
productivity in industrial firms in India during the regulatory regime is
not able to distinguish between the adverse effect that can be attributed
to dynastic firms and group-affiliated firms, and the part arising from
inefficiency under regulation.

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 104 From Handlooms to Modern Industry

3.9 Industrial Labour

In the early stages, the workers for the emerging industries in the nine-
teenth century were recruited from the rural communities. Even though
labour was abundant, finding workers for the modern industries was not
easy. All industries employed labour recruiters or ‘sirdars’ to use com-
munity connections to find workers. First-generation industrial workers
travelled from the rural hinterland to the cities. Nearly 90 per cent of the
textile workers in Bombay in 1911 were born elsewhere. Even in 1931
the share of workers born outside the city remained as high at 74 per cent
(Morris 1965, p. 63). The first-generation workers in the cotton textile
industry came from the hinterland of Bombay city and, over time, they
were recruited from more distant regions. Workers in the jute industry
were recruited from the hinterland of Calcutta and came from Bihar,
Orissa, and Eastern United Provinces. The recruitment of indentured
workers in the tea industry saw large-scale migration to tea plantations
in Assam and northern Bengal. This too relied initially on community
ties and later switched to professional recruiters as demand increased
(Gupta and Swamy 2017). Caste and community-based networks led
to fragmented urban labour markets (Morris 1965; Chandavarkar 1994;
Rudner 1994 and Chakrabarty 1989). Even in the early 1960s, a survey
of 500 mill workers in Bombay found that 81 per cent had relatives or
members of their caste in the textile industry (Patel 1963).
Most of the migrant workers were men who came to the cities in
search of higher wages. Their families continued to live in the village.
The women who migrated were widowed and single women who had
fallen into difficult times (Sen 1999). They worked in specific jobs and
their social status was low. There was a certain non-permanence in this
workforce. The urban world of the industrial worker remained closely
connected to the village and community. Historians have emphasized
the persistence of rural identity of the industrial workers, to whom the
towns were places of work and the village was where the family lived.
(Chakrabarty 1989; Chandavarkar 1994). The interconnection between
the two disrupted the annual routine of the industrial workers.
Chandavarkar (1994, pp. 159–167) builds a rich narrative of the rural
connections of the cotton textile workers in Bombay. Industrial workers
returned to the village, especially during the planting and harvesting sea-
son. This was particularly true of workers from the surrounding districts.
The railways made it easier to move between the village and the city.
The workers went back to the village for festivals, when they were ill,
when they were unemployed, and when they retired. Over a quarter of
the average industrial earnings were remitted to the village in the 1920s.

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 3.9 Industrial Labour 105

The jute industry also developed with migrant workers. In 1921, only
24 per cent were Bengalis; the rest came from Bihar, Orissa, and beyond
(Das Gupta 1976). As in the Bombay cotton mills, the rural and family
connections of the jute workers in Calcutta endured. Few had families
in the city (Chakrabarty 1989, p. 206). The migrant workers maintained
their rural connections and this hindered the formation of a working
class identity and adaptation to industrial discipline.
At the same time, trade unions emerged and workers joined unions to
defend their rights. The textile workers in Bombay were more organized
than industrial workers in other parts of India and wildcat strikes had
been common in Bombay mills. These became more organized in the
1920s. Wages in the cotton mills had risen during the First World War
and there was widespread industrial action to defend the higher wages
when the war ended. Wolcott (1994) and Wolcott and Clark (1999) see
India’s lack of competitive advantage against Japan and the low produc-
tivity of Bombay mills as a consequence of unionization. Gupta (2011),
on the other hand, argues that unionization resulted in higher wages in
Bombay mills in the 1920s compared to other locations and was an impe-
tus for increasing efficiency. In this competitive industry, the survival of
cotton mills in Bombay depended on increasing output per worker by
reducing the number of workers per machine. This happened in Bombay
mills over the course of the 1920s. Bombay firms had fewer workers per
machine, compared to other locations of the industry (Gupta 2011).
Over the twentieth century, the strong rural connections of the indus-
trial workers weakened. Between 1901 and 1961 the share of urban pop-
ulation increased. Although there was continued migration from rural
to urban centres in search of work, the unorganized sector absorbed
an increasing number of migrants. As the industrial structure changed,
skills and training became important and the urban labour market
became the place to recruit industrial workers. As the world of the sirdar
disappeared, workers’ organizations and unions appeared in most indus-
tries. The rural connection of the industrial worker survived through the
family economy as many workers had their families in the village (Ram
1984, p. 182).
From the Second Plan, the public sector employed thousands of work-
ers in the manufacturing sectors and the employment conditions were
formalized. The industrial workers in the public sector represented a
different type of workforce from the traditional industries. Industrial
workers in publicly-owned enterprises had greater representation from
different social groups, job security, and benefits. This was also the sec-
tor that adopted affirmative action following the legislation to reserve
a certain share of jobs for the disadvantaged caste groups and tribes

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 106 From Handlooms to Modern Industry

Table 3.9 Economic reform and growth in manufacturing

industry: organized versus unorganized sectors (% per year)

1984/85–1994/5 1989/90–1994/95 1994/95–1999/00

Value added
Organized 7.2 8.3 6.9
Unorganized 1.0 −1.0 6.9
Employment
Organized 0.6 2.1 0.7
Unorganized −1.0 −1.7 2.2
Labour productivity
Organized 6.6 6.1 6.2
Unorganized 1.9 0.8 4.8
Capital intensity
Organized 5.3 11.4 11.4
Unorganized −19.4 7.0 0.5

Source: Rani and Unni (2004)

(Breman 1999).7 Real wages in the manufacturing industry rose faster

than per capita income, with the wage growth reflecting growth in labour
productivity (Tulpule and Datta 1988).
Labour legislation in the factory industry during colonial rule regulated
hours of work and employment of women and children and was mod-
elled on British labour laws. Often this was implemented under pressure
from the industrial interests in Britain, who feared ‘unfair’ competition
from the import substituting industries. The Trade Union Act of 1926
formalized the formation and recognition of trade unions. The first post-
independence labour legislation in India was the Industrial Disputes Act
of 1947. It provided for institutions of wage setting and dispute settle-
ment, but also for protection against factory closures and redundancies.
The workers in the unorganized sector and in small-scale industries
remained largely outside the scope of employment security and unioni-
zation. In 1983, 75 per cent of the workers in manufacturing were in the
unorganized sector, rising to 84 per cent in 2003. The main increase in
employment in the unorganized sector took place in the 1990s as a result
of the increase in subcontracting and use of contract labour (Kotwal et
al. 2011). The wage gap in the organized and unorganized sectors wid-
ened over time.
The economic reforms of the 1980s introduced competition in the
manufacturing sector and the organized sector was better equipped to
deal with it, as shown in the growth in value added (see Table 3.9).

7
The nature of this affirmative action will be discussed again in Chapter 5.

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 3.10 Conclusion 107

The unorganized sector, on the other hand, was adversely affected both
in terms of value added and employment. Labour productivity and cap-
ital intensity rose in the organized sector. However, after 1994, there
was growth in value added and in labour productivity in the unorganized
sector. This sector has been the main source of employment growth in
manufacturing.

3.10 Conclusion
Although the traditional cotton textile industry declined in the nine-
teenth century, modern industries began to develop from the middle of
the nineteenth century. Both British and Indian entrepreneurs invested in
industrial enterprises. Initially British capital was in the export industries
and Indian capital in the main import substituting industries. After the
First World War, new industries developed that were import substituting.
Industrial development in colonial India had a certain dynamism and per-
formed better than agriculture. In 1947 industry was still a small part of
the economy and relied on imports for machinery and intermediate goods.
The first government in independent India under Nehru changed the
direction of industrial development. A planned development of ‘heavy’
industry with public sector involvement and extensive restrictions on the
role of the market, changed the composition of the economy. When the
Indian economy began to dismantle the regulatory system, the private
sector made major gains and the role of public investment declined over
time. The community-based structure of Indian industrial development
has had an enduring legacy. Family-based industrial conglomerates have
dominated Indian industrialization.
The growth and changes in the industrial sector did not lead the pro-
cess of structural change that was experienced in most developed econ-
omies. The growth in manufacturing did not pull out workers from
agriculture to industry as in the case of most industrialized countries.
Nor did it absorb the surplus labour in agriculture. While the share of
non-agricultural activities in GDP increased, their share in employment
remained much lower. In Chapter 4, I will say more on structural change
and how India has followed a different path from the countries that
industrialized in the nineteenth and early twentieth century.

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 4 Origins of India’s Service Sector Advantage

Economies transform from being dependent on agriculture to having

a large industrial sector and eventually become service sector domi-
nated as in most developed countries today. The transition for a low-
growth, subsistence-based agricultural economy to a high-growth,
modern economy with a large non-agricultural sector represents struc-
tural change. One of the six ways to characterize modern economic
growth that was put forward by Kuznets is the rising share of the non-
agricultural sector (Nobel Lecture of 1971). Syrquin, in the Handbook
of Development Economics (Volume 1 1988), described structural
change as the relative importance of sectors in the economy in terms of
production and factor use. Industrialization is then the central process
of structural change.
Economic growth in modern developed countries was driven by
industrialization. In these economies, agriculture was the largest sec-
tor in employment and output in the Malthusian or subsistence phase.
Modern economic growth began with a decline in the share of agricul-
ture and a rise in the share of non-agricultural sectors, industry, and
services in employment and GDP. The change was driven by industry
as it emerged as the largest sector. This was followed by a decline in
the share of industry and a rise in the share of the service sector. The
structural change from underdevelopment to development therefore put
industry at the centre of modern economic growth. This was the experi-
ence of most developed countries in Europe and North America and also
in Asia’s first industrializing economy, Japan.
In the developing countries today, industry has not always played the
same role in structural change. Brazil and Mexico in Latin America,
South Korea, Indonesia, Thailand, and Malaysia in Asia from the 1960s,
and China from the 1980s have seen a big increase in the share of indus-
try in GDP. However, in several Asian economies that industrialized
after the Second World War, the share of the industrial sector in employ-
ment has not risen in line with the share in GDP and the share of agri-
culture in employment has not declined in line with its share in GDP.

108

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 Origins of India’s Service Sector Advantage 109

Table 4.1 Sectoral shares of value added in GDP in comparable developing

countries and in employment (%)

Sectoral shares of value added in GDP

Agriculture Industry Services

1960* 1980 2000 1960* 1980 2000 1960* 1980 2000

India 50 38.9 24.6 20 24.5 26.6 30 36.6 48.8

S Korea 37 15.1 4.3 20 40.5 36.2 43 44.4 59.5
Indonesia 50 24 17.2 25 41.7 46.1 25 34.3 36.7
Thailand 40 23.2 9.0 19 28.7 42.0 41 48.1 49.0
Malaysia 36 22.6 8.8 18 41.0 50.7 46 36.3 40.5
China 30.1 16.4 48.5 50.2 21.4 33.4
Brazil 16 11.0 7.3 35 34 28.0 49 53 64.7
Mexico 16 9.0 4.2 29 33.6 28.0 55 57.4 67.8

Sectoral share in employment

Agriculture Industry Services

1960* 1980 2000 1960 1980 2000 1960* 1980 2000

India 74 68.1 59.3 11 13.9 18.2 15 18.6 22.4

S Korea 66 34.0 10.9 9 29.0 28.0 25 37.0 61.0
Indonesia 75 55.9 45.3 8 13.3 17.3 17 30.2 37.2
Thailand 84 70.8 48.8 4 10.3 19.0 12 18.9 32.2
Malaysia 63 37.2 18.4 12 24.1 32.2 25 38.7 49.5
China 68.7 46.9 18.2 23.0 11.7 29.9
Brazil 52 29.3 24.2 15 24.7 19.3 33 46.1 56.5
Mexico 55 23.5 17.5 20 26.5 26.9 25 49.0 55.2

Source: Kochhar et al. (2006), based on World Development Report 2005,

* Bhattacharya and Mitra (1990), based on World Development Report of 1983

India is an outlier both in terms of the share of industry in output

and in employment. The share of industry is smaller in both GDP and
employment compared to similar developing countries (see Table 4.1).
In 2000, nearly 50 per cent of GDP originated in the service sector.
Although industry had been the focus of planned development in inde-
pendent India, its contribution to the economy did not exceed 30 per
cent of GDP at any time.
In 1960, India had a relatively high share of GDP and employment in
agriculture, compared to several other countries in Asia emerging from
colonization, and this was slow to change. India was an outlier in 2000,
in the high share of services in GDP relative to employment. The service

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 110 Origins of India’s Service Sector Advantage

sector produced the largest share of national output, but was not the
largest sector in employment. The comparison in Table 4.1 does not
consider the differences in GDP per capita and land area of countries.
Taking these into consideration, Kochhar et al. (2006) found that the
share of industry in India was not significantly lower in 1980 as the data
in Table 4.1 suggests. On the other hand, the service sector in 1980 was
an outlier, accounting for less than what would be predicted by GDP per
capita (Kochhar et al. 2006).
Economic reforms since the 1980s that led to faster GDP growth have
been discussed in Chapters 1 and 3. This changed the relative contri-
bution of the sectors to economic growth. As Table 4.1 shows, in 2000,
the service sector accounted for the largest share of GDP, although agri-
culture still employed the largest share of workers. Services have grown
faster than industry both in terms of output and productivity. What
accounts for the rapid growth of the service sector?
This chapter takes a historical perspective to explore if the service sec-
tor had an inherent advantage that is specific to India. Does India’s colo-
nial history have a role? I begin with a description of caste-based service
sector occupations and explore if they created an advantage for the ser-
vice sector in a modernizing economy. I discuss what implications occu-
pational inequalities had for productivity growth in the three sectors and
offer an explanation of India’s service sector advantage.

4.1 Caste and Occupation

In traditional societies most of the workforce is engaged in agriculture
and the non-agricultural activities are mainly artisanal. Within the village
community, there is exchange between agricultural and non-agricultural
goods, but village communities are rarely self-sufficient and inter-village
exchange and interregional trade have characterized societies even
before the present millennium. In Indian villages, agricultural house-
holds divided time between agriculture and industrial production. For
example, for women, spinning was a part-time activity. Other household
production included basket weaving and bidi making. Specialization in
industrial activities was mainly for the local market, and many prod-
ucts were traded in a larger market outside the local community and
region. In early modern India regional specialization in textiles and arti-
sanal products generated trade across regions. An urban artisanal sector,
though small, flourished in Mughal India.
For those in the village economy who were not involved in agricul-
ture and artisanal jobs, employment was available in a variety of ser-
vices. In the nineteenth century in Madras Presidency, a large number

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 4.1 Caste and Occupation 111

of services were performed by specialists outside the household and

there was occupational segregation by caste and religious subgroups.
Village communities in India had greater specialization by occupation
compared to other societies at a similar level of development (Kumar
1987). With the rise of modern, large-scale industries and access to
larger markets, industry began to recruit from a national market.
Industrial workers came from different castes and learned new skills.
Many services remained specialized by caste and others saw more min-
gling of groups.
The occupational structure in India has been defined by caste since
ancient times. Within the broad rules of the caste system there are four
hierarchical varnas: Brahmans (the priests), Kshatriyas (the warriors),
Vaishyas (the commercial interests), and Shudras (performing menial
tasks). Within the varnas there are numerous subcastes or jatis. These
were historically occupation-related categories. Jatis or subcastes had
some fluidity. Occupation of a jati could vary across regions, but within
a region members of a particular jati typically followed the same occupa-
tion. The term caste in the censuses and other enumerations is used to
refer to jatis. Some castes had an advantage in literacy and wealth, arising
from the needs of their occupation, and I discuss the consequences of
this advantage for productivity and for the evolution of different sectors
in the economy.
Dirks (2001) claimed that the census enumeration by the colonial gov-
ernment made caste identity salient, solidifying the link between caste
and occupation. Munshi (2019) points out that the first enumeration
of caste dates back to Mughal India.1 Although colonial censuses might
have enhanced caste identity in certain types of jobs, it did not create
them. Subrahmanyam (1990) studied the occupational structure of two
villages in Southern India in 1692, where the Dutch East India Company
enumerated households by occupation. The composition of households
from one of the villages is classified by occupational groups listed in Table
4.2. The weavers belonged to three different castes. Among other occu-
pational groups enumerated by caste were Komattis, a trading caste,
Brahmins, the priests, and Pariahs, low castes engaged as labourers. The
rest of the households were enumerated by occupation, most of which
were linked to particular castes. The left-hand and right-hand castes in
Southern India were segregated into specific occupations within each
group. The left-hand castes were in agricultural activities and trade in
agricultural commodities, while right-hand castes were in artisanal pro-
duction and trade in non-agricultural goods (Stein 1982). The weavers

1
Munshi’s claim is based on Appadurai 1993.

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 112 Origins of India’s Service Sector Advantage

Table 4.2 Classification of households by

occupational groups in Golepa (1692)

Weavers Cultivators Coppersmiths

Kaikkolas Toddy-tappers Brahmins
Salis Oilmen Embroiderers
Devangas Milkmen Carvers
Komattis Painters Barbers
Goldsmiths Washers Smiths
Betel sellers Cobblers Potters
Tobacco Sellers Pariah Textile-beaters

Source: Subrahmanyam (1990)

in the Coromandel were represented by various castes, each specializing

in a particular type of cloth (Brennig 1990). Long before the colonial
­censuses, castes determined occupations.
The importance of trading castes in the commercial life of towns and
villages is well documented. Maritime trade also involved caste-based
networks. High-caste Hindus faced religious restrictions on overseas
travel. The term kalapani, or black water, was a symbol of impurity asso-
ciated with crossing seas to distant lands and was a hindrance to Hindu
traders in participating in maritime trade. Consequently, the high seas
were dominated by Muslim traders from Bohra and Khoja communities
from the fifteenth century in western India, Bengali Muslim traders in
the east, and Jewish and Christian merchants in Malabar (Bouchon and
Lombard 1987, pp. 62–67). The Parsis became important in the trade
with China. The bankers and financiers for this trade came from the
Hindu trading communities, the Hindu Bania, the Chettiars, and the
Jains (Arasaratnam 1987, p. 106; Rudner 1994).
Given the importance of caste in the occupational structure, skill for-
mation in pre-colonial India was also caste specific. The skills of the
weavers and metal workers of silver, copper, and other alloys were world
renowned. The skills passed from generation to generation within castes,
but there was little dissemination of these artisanal skills outside the
group. While there were gains from specialization within the group, the
caste-based occupation may have been a hindrance to diffusion of tech-
nology and technological change. Evidence suggests that the technology
in various industrial sectors in India, such as textiles, changed little over
the centuries (Habib 1976).
Kremer (1993) has argued that the likelihood of new technol-
ogy increases with population size. A system that limits the spread of

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 4.1 Caste and Occupation 113

knowledge within a restricted group limits itself to a smaller popula-

tion and fewer inventions, and hinders better dissemination of use-
ful knowledge.2 Useful knowledge was passed on by migrant artisans
and industrial workers in Europe. The European institution of guild,
apprenticeship, and journeymen employees might have allowed wider
dissemination of knowledge and skills compared to kinship-based insti-
tutions of knowledge and skill transmission (De la Croix et al. 2018).
The path of knowledge transmission through family and caste increased
the cost of knowledge acquisition in India relative to Europe (Roy 2008).
At the same time, being in an occupation-based caste group might
have conferred advantages on individuals within certain groups. For
example, when an occupation required skills such as literacy and numer-
acy,3 individuals belonging to these castes became literate. This would
have encouraged human capital accumulation within certain castes and
given these groups an advantage when economic development opened
up new opportunities for individuals with valuable human capital. The
Brahmans, for example, were required to read the religious texts and
as a group had high literacy. When reading the Torah was made com-
pulsory for boys in Judaism, it gave the Jewish community in a mainly
agricultural Palestine an advantage in urban occupations (Botticini and
Eckstein 2005, 2006). Human capital accumulation among Protestants
due to the necessity to read the bible had given them an advantage in
urban occupations in Prussia and led to industrial development (Becker
and Woessman 2009).
The trading castes in all regions were more literate than most other
groups, although traders belonged to different castes in different regions
(Broadberry and Gupta 2010). Not all caste and religion based groups
that were involved in trade had the same literacy level. Table 4.3 shows
the differences in literacy by trading communities in Bombay Presidency
in 1901 and 1911. These groups were Parsis, Jains, and the Baghdadi
Jews. Parsis were the most literate community. The Hindu trading
groups, such as Vanis and Bhatias, also enjoyed a higher literacy, as did
the Muslim trading groups of Bohras, Khojas, and Memons. Timberg
(1978) shows that literacy among the male members of the trading com-
munity of the Marwaris in Bengal was high. In caste and religion-based
groups that mainly engaged in trade and banking, literacy was higher
than the average for the larger communities of Hindus and the Muslims.

2
Useful knowledge was a term coined in the context of the industrial revolution in Europe
(Mokyr 2015).
3
Trading communities in ancient Minoan, Phoenician, and Etruscan civilizations also
enjoyed higher literacy and numeracy (Captivating History 2020).

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 114 Origins of India’s Service Sector Advantage

Table 4.3 Literacy among trading communities in Bombay

Presidency

Literacy Male literacy

in 1901 in 1911

Hindu 11 Vani 60
Muslim 7 Bhatia 56
Jain 50 Khoja, Bohra, Memon 41
Parsi 75
Baghdadi Jew 54

Note: Vani and Bhatia are Hindu trading castes. Khoja, Bohra and
Memon are Muslim trading groups
Source: Censuses of India 1901 and 1911

4.2 New Occupations

The economic changes in India from the middle of the nineteenth
century saw a decline in some traditional occupations and emer-
­
gence of new occupations in new sectors. Castes that were literate
could benefit in the new environment. This changed the connection
between caste and occupation for some social groups and opened the
door to upward mobility for certain castes. Upper castes began to
acquire western education and embraced new professions. Its impact
was minimal among the agricultural and services castes at lower levels
of the hierarchy,
By 1901, human capital as captured by measures of literacy was docu-
mented in the colonial censuses. Apart from literacy recorded at the
district level and aggregated at the province level, the colonial censuses
documented literacy by caste. Table 4.4 shows the top two or three most
literate castes in selected provinces. The table reports literacy and lit-
eracy in English. Three things stand out: first, there was a large gap
between average literacy in a province and the literacy of the most lit-
erate castes; second, there was a large gap between male and female lit-
eracy; and third, castes with the highest literacy across provinces came
from service sector occupations. The Brahmans, or the priests, had high
literacy in every province. Other castes with high literacy were the trad-
ing castes and the castes in professions. All these groups belonged to the
upper end of the caste hierarchy.
The highly literate upper castes could move into jobs that required ter-
tiary education, such as government services, medicine, and law. In the
highest level jobs in administrative and legal services, medical professions,

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 4.2 New Occupations 115

Table 4.4 Highest literacy by caste in selected provinces

Number literate Number literate in

in 1,000 English in 10,000

Male Female Male Female

Assam 67 4 87 <1
Brahmans 517 27 592 8
Kayastha 471 56 910 9
Bombay 116 9 60 8
Vani (Gujarat) 776 158 709 5
Prabu 474 177 2,914 172
Brahman 580 54 1,026 10
Bengal 67 4 35 2
Baidya 648 259 3,039 85
Kayastha 560 66 1,323 33
Brahmans 467 26 737 5
Central Provinces 54 2 18 2
Bania 446 11 95 1
Brahman 365 9 337 2
Madras 119 9 44 6
Eurasian 729 710 7,150 6,951
Brahman 578 44 975 11
United Provinces 57 2 18 3
Kayastha 553 46 NA NA
Cochin 224 45 NA NA
Brahman (Malayali) 695 227 66 NA
Kshatriya (Malayali) 615 319 1,171 67
Nayyar 425 119 209 14
Mysore 93 8 51 11
Brahman 681 64 1,022 24
Digambara 410 21 79 NA
All India 98 7 36 5

Source: Census Report (1901, pp. 181–183)

and universities, three castes dominated: Brahmans, Kayasthas, and

Baidyas (Census Report 1901, pp. 217–218). They were also among the
most literate and had literacy in English. Several trading castes moved
into industry as entrepreneurs, as we have seen in Chapter 3, and also
into other modern commercial sectors, such as banking and retail. The
high literacy in these castes relative to the rest of the population sug-
gest the concentration of human capital in many service sector occupa-
tions. This is the starting point for thinking about India’s service sector
advantage.

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 116 Origins of India’s Service Sector Advantage

4.3 Demand and Supply of Education

By the late nineteenth century, demand for education, and in particular
for literacy in English, was high among the elites. The demand came
mainly from the communities involved in urban occupations. The mod-
ernization of the economy, the development of new sectors, and the
expanding civil service and other public services created demand for pri-
mary, secondary, and tertiary education.
The censuses show a large difference in literacy between urban and
rural India. In 1901, 259 males and forty-nine females out of a thou-
sand in large towns were literate, compared to ninety-eight males and
seven females in rural India (Broadberry and Gupta 2010). However,
demand for education was low, not just in the population engaged in
agriculture, but also among workers in industry. In the cotton mills of
Bombay, literacy was very low, as was the case in other industries. In its
report, the Industrial Commission of 1916 found evidence that when
children of fathers in artisanal jobs acquired primary education, they did
not value manual occupations in industry and sought instead clerical
jobs that required literacy (p. 109). As discussed in the previous section,
the demand for education was mostly driven by certain service sector
occupations. Chaudhary and Fenske (2023) asked if the development
of the railway network in India created demand for education and found
that the exposure to a railway line in a district, measured by the num-
ber of years of having a line, increased secondary school enrolment. The
impact was mainly on male literacy and on literacy in English, but it
was not broad-based.
In 1921, about 10 per cent of the population was literate and 1
per cent had literacy in English (Chaudhary 2010). The gap between
male and female literacy was large: 17 per cent for men and 3 per cent
for women. There were large differences in literacy across provinces.
Bengal, Bombay, and Madras had some of the highest enrolment in
schools (Chaudhary and Garg 2015). One unique feature of the educa-
tion system was that, conditional on having access to primary education,
demand for secondary education was high. Figure 4.1 shows the positive
correlation between the literacy rate in 1921 and the share of workforce
in the service sector.
Before the introduction of a uniform education system from the middle
of the nineteenth century, religious schools provided education to spe-
cific groups using a group-specific curriculum. Patchy information from
Bengal in 1811 put literacy at 4.3 per cent of the population. In compari-
son, the census of 1901 put literacy in Bengal at 6.7 per cent (Table 4.4).
The EIC was mindful of the need to create a local elite that could be

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 4.3 Demand and Supply of Education 117

Figure 4.1 Relationship between literacy and share of the service sector
in employment
Source: Data from Chaudhary and Fenske (2020)4

involved in the colonial administration. Nurullah and Naik (1951) have

argued that all through the nineteenth century there were discussions
in the policy circles and among Indian elites on the type of education
that the country needed: western curriculum based, the language of edu-
cation, and who should benefit from it. The social reformer Raja Ram
Mohan Roy voiced his support for western science.
The new system combined publicly funded and managed schools
with privately funded schools that also received financial aid from the
government (Chaudhary 2015). The adoption of a uniform curriculum
heralded a modern education system. Education spending came under
the oversight of the provincial governments and was further decentral-
ized to district and municipal boards. Under a decentralized system,
allocation of funding was decided by those on the district and munici-
pal boards. Indian elites had a presence on these boards and therefore
their preferences shaped a substantial part of education spending. The
boards decided where schools would be set up and what type of schools
were needed. The preferences of the elites on the boards influenced

4
I thank Latika Chaudhary and James Fenske for sharing the data.

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 118 Origins of India’s Service Sector Advantage

which private schools would receive public funding. Chaudhary’s

(2009) important work on colonial education shows that the caste
composition of districts had a major influence on the allocation of
the education budget. The local elites responded to the demand from
their communities for secondary schools. In districts with high caste
diversity, there were fewer primary schools and a relatively larger share
of private funding for education was directed to secondary schools
(Chaudhary 2009).
Chaudhary et al. (2012) show that colonial India had one of the lowest
spending on education per head of school age population when com-
pared with other developing countries. It was lower in comparison to
the Princely States in India, which were outside British administration.
In comparison with other countries, India spent a low share of the edu-
cation budget on primary education (Chaudhary 2009). Only one-third
of the education budget was spent on primary schools between 1891/92
and 1916/17, while the USA spent more than 90 per cent of public edu-
cation expenditure on primary education from 1850 to 1890. The USA
began to expand secondary education when over 85 per cent of the pop-
ulation was able to read and write. In the United Kingdom public spend-
ing on primary education was 73 per cent and in Japan 84 per cent in
1890 (Chaudhary 2009).
Surprisingly, in India the share of the school age population enrolled
in secondary schools was comparable to France, but lagged behind
Brazil in primary school enrolment. Table 4.5 shows the relative share of
enrolment in primary and secondary education. At the time, when most
countries started with expanding primary education, Indian education
policy prioritized secondary and higher education for the small number
of children in primary schools creating inadequacies in the provision of
schooling and development of human capital. Table 4.6 shows the pri-
oritization of higher education over universal primary schooling. The
share of spending on secondary and tertiary education was unusually
high compared to other Asian countries, including Japan in 1930, with
60 per cent of the education budget allocated to secondary and tertiary
education, when Japan and Indonesia spent less than 30 per cent on this
and targeted expansion of primary education.
As Table 4.6 shows, this pattern of education spending has endured
after independence. Spending per student in tertiary education was 86 per
cent of per capita GDP in 2000 but only 14 per cent per student in primary
education (Kochhar et al. 2006). Castello Climent et al. (2017) found that
variations in economic development across Indian districts today can be
explained by differences in access to higher education. I will argue in this
chapter that the higher education bias in education in colonial India paved

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 4.3 Demand and Supply of Education 119

Table 4.5 Comparative enrolment rates (number

enrolled per 1,000 school age population)

India Brazil Japan France UK

Primary

1900 53 102 507 859 720

1910 78 123 599 857 729
1920 102 147 602 704 701
1930 142 215 609 803 745

Secondary

1900 10 0 13 11 7
1910 14 5 74 14 21
1920 20 6 108 24 44
1930 34 8 165 32 58

Source: Chaudhary (2015, table 10.2)

Table 4.6 Share of secondary and higher

education in total government spending on
education (%)

India Indonesia Japan

1890 61.2 18.8 14.8

1910 62.3 18.5 24.2
1930 59.5 21.4 30.8
1950 57.3 28.2 59.6
1970 75.5 36.2 62.9
1990 56.9 58.8 66.9

Source: Van Leeuwen (2007, pp. 276–284)

the way for concentration of human capital in service sector occupations

and may explain India’s productivity advantage in services.
Vocational training was available to a limited extent in the urban cen-
tres. Given the lack of technical knowledge among the industrial workers
in the modern sectors, there was a shortage of technicians for the emerg-
ing industries. Initially most of these technicians were British (Report of
Industrial Commission 1916–1918, pp. 104–105). Among the Indians,
mostly Parsis had the qualifications to work as technicians in the cotton
textile industry. Other groups gradually entered the occupation, but not
in large numbers.

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 120 Origins of India’s Service Sector Advantage

The Victoria Jubilee Technical Institute was set up in Bombay in 1887

to train workers for cotton mills, and from 1904 scholarships were avail-
able for workers to train in Europe and North America. However, the
scheme was not very successful due to the barriers the visiting students
faced in accessing technical training while abroad (Report of Industrial
Commission 1916–1918, p. 107). The 1916 Industrial Commission
noted that, outside India, training for new industrial skills was rarely
available to Indians. Technical institutions were also set up in other parts
of the country. Some were publicly funded and others relied on private
initiatives (Report of Industrial Commission 1916–1918, p. 614). The
scope of these initiatives remained limited and constrained by the lack of
basic education among the industrial workers.
By 1901, four engineering schools had been set up under public ini-
tiatives in different parts of the country. There were other vocational
and higher education institutions, such as agricultural and veterinary
colleges, as well as medical schools. The numbers in attendance were
small and the focus was on the needs of the public services and pub-
lic works departments (Report of Industrial Commission 1916–1918,
pp. 565–70). An Indian school of mines was set up in 1926 (Report
of Industrial Commission 1916–1918, p. 501). Universities were estab-
lished in Calcutta, Bombay, and Madras in the middle of the nineteenth
century and the number of universities expanded in the course of the
twentieth century.
As discussed, education spending in colonial India emphasized higher
education rather that universal basic education. Consequently, the sup-
ply of education was skewed towards secondary and higher education
that suited the demand from the elites. The British government in India
showed little interest in universal primary education, even as policies
to expand primary education were increasingly popular in Britain. The
colonial government wanted to train a highly educated Indian elite, who
could participate in the civil service and various administrative bodies.
This is particularly significant as colonial policy went against creating
broad-based human capital, a well-trodden path by that time in most
developed countries in Europe and North America and also Asia’s most
successful economy, Japan. At a time when labour legislations in British
industries were adopted in India without much delay, under pressure
from British industrial interests, primary education did not become a
priority despite various representations to the British administration in
India and local initiatives. I will argue in Chapter 6 that the consequences
of not prioritizing primary education had long term consequences for
India’s path of economic development, particularly in comparison to
East Asia.

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 4.4 Structural Change 121

4.4 Structural Change

In 1875 nearly three-quarters of the Indian workforce was engaged in
agriculture and the sector produced the largest share of national output.
The share of agriculture in employment did not change much until 1950.
The picture of the sectoral share in GDP is quite different. Table 4.7
shows the shares of different sectors over the twentieth century. The
categories are primary, secondary, and tertiary. Agriculture is the main
component of the primary sector and industry is the main component
of the secondary sector. The tertiary sector is services. The decline of
agriculture in GDP, the rising share of industry and services, and the
persistence of a high share of agriculture in employment highlights big
differences in labour productivity across agriculture and non-agriculture.
Unlike in the developed countries and despite the growth in industry and
services, few workers moved from low productivity agriculture to higher
productivity industrial and service sectors.
Gollin (2014) re-evaluates the Lewis model in the context of the per-
sistence of a large share of labour in agriculture in developing countries
today and the productivity gap between agricultural and non-agricultural
sectors. In the Lewis model, named after the Nobel Laureate, Arthur
Lewis, the economy is divided into a subsistence level informal sector
with ‘unlimited surplus labour’ and a formal modern sector. The shift
of workers from the subsistence economy to the modern sector keeps
wages low in the latter and encourages fast accumulation. Gollin argues
that this was not the situation in the developing countries at the end of
the twentieth century due to the frictions in factor markets. There is a
large gap in wages and labour productivity between the non-agricultural

Table 4.7 Changes in sectoral shares in GDP and employment in the

twentieth century (%)

Primary Secondary Manufacturing Tertiary

GDP Employment GDP Employment GDP GDP Employment

1900 66.2 75.0 10.8 10.6 10.3 23.0 14.4

1930 56.1 76.0 13.5 9.0 12.9 30.4 15.0
1950 50.4 73.6 15.8 10.2 12.0 30.0 16.2
1980 33.2 69.5 26.4 13.4 19.9 38.2 17.1
2000 22.6 64.2 30.9 13.9 23.4 45.5 21.0

Note: The small differences between Tables 4.1 and 4.7 arise due to differences in
classification
Source: Sivasubramonian (2000, tables 2.8, 9.31, Appendix table 7(f) and 9 (d))

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 122 Origins of India’s Service Sector Advantage

sector and the agricultural sector in developing countries. The average

productivity of the non-agricultural sectors is relatively similar across
developed and developing countries (Caselli 2005). Rodrik (2013) finds
unconditional convergence in labour productivity in the manufacturing
industry across a large number of countries between 1965 and 2005.
This suggests a faster catch up to the technology frontier in modern
manufacturing than for the economy as a whole. Countries adopt the
latest technology in sectors like manufacturing. This technology is typi-
cally labour saving. Consequently, the transfer of labour from agriculture
to non-agriculture tends to slow down and structural change in today’s
developing countries tends to follow a different path.
However, should this be the case for India, when the fastest growing
sector is services? Many of the subsectors in services are in non-tradables
and many of these sectors use labour more intensively relative to capital.
The following section discusses the differences in labour productivity
across the three main sectors: agriculture, industry, and services.

4.5 Historical Differences and Changes in Labour

Productivity across Sectors
Figure 4.2 shows changes in sectoral output over the longer run.
Industry and services grew faster that agriculture. In output per worker,
the service sector already had an advantage during the colonial period, as

100,000

10,000
GDP in log scale

1,000

100

10

1
1900-01
1902-03
1904-05
1906-07
1908-09
1910-11
1912-13
1914-15
1916-17
1918-19
1920-21
1922-23
1924-25
1926-27
1928-29
1930-31
1932-33
1934-35
1936-37
1938-39
1940-41
1942-43
1944-45
1946-47
1948-49
1950-51
1952-53
1954-55
1956-57
1958-59
1960-61
1962-63
1964-65
1966-67
1968-69
1970-71
1972-73
1974-75
1976-77
1978-79
1980-81
1982-83
1984-85
1986-87
1988-89
1990-91
1992-93
1994-95
1996-97
1998-99

AGRIC IND Services

Figure 4.2 Sectoral GDP in 1948/49 prices (log scale)

Source: Sivasubramonian (2000, appendix table 7(f))

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 4.5 Changes in Labour Productivity across Sectors 123

Table 4.8 Changes in sectoral labour productivity (% per year)

Output per worker

Agriculture Industry Services GDP

1872–1900 0.4 1.1 0.0 0.4

1900–1946 0.0 1.4 1.0 0.5
1950–1970 0.9 3.4 2.8 1.9
1978–2004* 1.4 2.5 3.5 3.3

Source: Broadberry and Gupta (2010)* Bosworth et al. (2007, table 3)

1,600

1,400

1,200
GDP per worker in Million Rs.

1,000
Primary
800 Secondary
Tertiary
600 GDP

400

200

0
1901–05 1906–10 1911–15 1916–20 1921–25 1926–30 1931–35 1936–40 1941–45

Figure 4.3 Output per worker by sector in million Rupees in 1948/49

prices (1901–1945)
Source: Author’s calculations from Sivasubramonian (2000, tables
7.19, 2.11, 6.11)

Figure 4.3 shows. Output per worker in services was twice as high as in
agriculture, but in industry it was only 25 per cent higher in 1901. The
output and employment data from Sivasubramonian (2000) have been
used by Broadberry and Gupta (2010) to calculate the average annual
growth rates of labour productivity by sector over the twentieth century
(see Table 4.8). Growth in output per worker put industry in the leading
position until the late 1970s.
Output per worker in industry had begun to grow in the late nine-
teenth century with the birth of the modern manufacturing sector, as

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 124 Origins of India’s Service Sector Advantage

discussed in Chapter 3, but the modern sector was too small to make
an impact on the overall productivity of industry. Growth in output per
worker in industry picked up as modern industry increased its share rela-
tive to the small-scale and artisanal industrial sector. Output per worker
was stagnant in agriculture throughout this period. In services, growth
in output per worker stagnated before 1900, as shown in Table 4.8. For
the rest of the colonial period it was positive, but slower than in industry
(see Table 4.8). Labour productivity growth in the economy as a whole
was held back by stagnation in agriculture.
During the second half of the twentieth century, output per worker in
agriculture grew, though slowly. Output per worker in industry and ser-
vices grew faster. As Table 4.8 shows, growth in labour productivity in
industry was faster than in services, not only in the colonial period, but
also in the first thirty years after independence. This changed after 1978
and the service sector emerged as the fastest growing sector.
What explains the slower growth of the service sector between 1900
and 1946 and between 1950 and 1978, despite its productivity advan-
tage? In the colonial period, the faster growth of industry reflects the
rebalancing between the low productivity artisanal and small-scale indus-
tries and the higher productivity modern manufacturing. There were less
significant changes in services. After 1950, under Nehruvian policies, the
emphasis was on industrial development. High investment in this sec-
tor gave an advantage to industry relative to services. Economic reforms
from the 1980s brought about productivity-enhancing changes in the
private sector and the service sector began to catch up.
Table 4.9 reproduces the growth accounting exercise done by
Bosworth, Collins and Virmani (2007). The paper disaggregates the
sources of growth into the contributions of physical and human capital
and the contribution of total factor productivity. The exercise shows that
the contribution of physical capital was higher in industry, but the con-
tribution of human capital was more important in the service sector. The
contribution of total factor productivity in growth had been negative in
agriculture and industry before 1980, but turned positive and increased
significantly in all sectors following economic reforms. The service sec-
tor stands out in terms of the contribution of total factor productivity
after 1980 (see Table 4.9). In this period India’s total factor productivity
growth in services was higher than that in China (Bosworth and Collins
2008). In terms of contribution to overall economic growth, it can be
argued that, while China’s growth is driven by manufacturing success,
India’s growth is led by the service sector. This is reflected in the differ-
ence in the pattern of structural change in India and China. Bosworth
and Collins (2008) noted that India’s development experience is very

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 4.5 Changes in Labour Productivity across Sectors 125

Table 4.9 Sources of growth in output per worker (1960–2004)

Contribution of
Output
per worker Physical capital Human capital TFP

Agriculture
1960–1980 0.1 0.2 0.1 −0.1
1980–2004 1.7 0.4 0.3 1.1
Industry
1960–1980 1.6 1.8 0.3 −0.4
1980–2004 3.0 1.6 0.3 1.1
Manufacturing
1960–1980 2.0 1.5 0.3 0.2
1980–2004 4.0 2.1 0.4 1.5
Services
1960–1980 2.0 1.1 0.5 0.4
1980–2004 3.8 0.7 0.4 2.7
India
1960–1980 1.3 0.8 0.2 0.0
1980–2004 3.7 1.4 0.4 2.0

Source: Bosworth et al. (2007, tables 4 and 5)

different from that of China and other rapidly growing Asian economies,
which have pursued manufacturing-led development. India’s devel-
opment path stands apart from the pattern of the structural change in
most developed countries, but also in comparison to several fast-growing
developing countries today, as shown in Table 4.1.
The policy of planned industrial development had prioritized more
skill intensive sectors, rather than labour intensive sectors, in the early
phase. The skills developed in the skill intensive industries could be used
in the skill intensive services (Kochhar et al. 2006). The skill intensive
services, such as banking and communication, have grown faster than
other segments of the service sector. Singh (2012) shows that, within the
service sector, subsectors like business services, communication, bank-
ing, hotels, and restaurants have shown an increase in growth in the
1980s and 1990s. Growth in other service subsectors, such as insurance,
public administration, legal services, real estate, and personal services,
slowed down in the 1990s. The fastest growing sectors are modern ser-
vices like communications, business services, and services that are sold
in the international market (Banga 2005; Eichengreen and Gupta 2011).
Eichengreen and Gupta (2011) point out that India’s rapid growth in
the service sector after 1990 is partly due to its unusually low share dur-
ing the period of planning and even in the 1980s. They divide the service

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 126 Origins of India’s Service Sector Advantage

Table 4.10 Growth rates in selected services (% per year)

Share in 1980 1980s 1990s

Business services 0.3 13.5 19.8

Communications 1.0 6.1 13.6
Banking 3.4 11.9 12.7
Hospitality 0.7 6.5 9.3
Community services 4.3 8.4
Trade 11.9 5.9 7.3
Transport 3.8 6.3 6.9
Public administration and defence 6.0 7.0 6.0
Legal services 0.0 8.6 5.8
Personal services 1.1 2.4 5.0
Storage 0.1 2.7 2.0

Source: Gordon and Gupta (2004)

sector into three subgroups: traditional services, such as trade, transport

and storage; traditional and modern services consumed by households,
such as education, health, and hospitality; and modern services such as
finance and information technology and communication. They show
that, although service sector growth is spread across the groups, pro-
ductivity growth has been fastest in the modern services. Gordon and
Gupta (2004) found that the fastest growth was in the skill intensive
business services, communications, and banking, but these sectors had a
small share in GDP. Trade and public administration have larger shares
and have grown at a slower pace (see Table 4.10). India’s fast-growing
service exports are also in these emerging sectors. Using evidence from
the World Bank data, Banga (2005) suggests that the sectors such as
business services, including software, show revealed comparative advan-
tage in the activities that require high quality human capital. During
1990–1995 and 1996–2002, the share of software services in exports
rose from 34 per cent to 60 per cent and India became a net foreign
exchange earner in services after 1997–1998 (Banga 2005). Service sec-
tor exports have grown at about 20 per cent per year from the mid 1990s
and accounted for 33 per cent of total exports in 2004, a very different
composition of exports compared to China. The latter exports a growing
volume of industrial goods (Bosworth and Collins 2008).

4.6 Human Capital and Service Sector Advantage

Does India enjoy an advantage in services in comparison to other devel-
oping countries? Consider the role of human capital. Kochhar et al.

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 4.6 Human Capital and Service Sector Advantage 127

(2006) suggest that the skewed education system that prioritized tertiary
education was useful in the skill intensive industrial and service sectors.
Demand for skilled workers has been high, while unskilled workers with
basic education could not be absorbed in the fast-growing industrial sec-
tors. Consequently, the movement of labour from agriculture to industry
has remained low. From the 1990s, labour has moved from agriculture
to the slow-growing, low-skill service sectors such as trade and con-
struction, but the fastest growing service sectors have the same profile
of labour demand as the skill intensive industries (Kotwal et al. 2011).
These skill intensive services absorb little excess labour from agriculture.
Ramaswamy and Agrawal (2012) focus on urban India and find that
the share of the service sector in employment was higher than the share
in industry. Within services, trade and hospitality and financial and busi-
ness services employed more people than industry. There was a differ-
ence in the human capital of workers in the two sectors in 2000. In
manufacturing, 27 per cent of the male workers had secondary education
and 14 per cent had tertiary education, while in services the numbers
were 29 per cent and 21 per cent, respectively. Among female workers,
only 4 per cent of the workforce in manufacturing in urban India had a
college degree. In services the figure was 25 per cent. For female work-
ers with secondary education, employment shares were 12 per cent in
manufacturing and 20 per cent in services (Ramaswamy and Agrawal
2012). Educated women are better represented in service sector jobs.
The manufacturing sector, on the other hand, absorbs workers with low
levels of education. This is borne out by Figure 4.4. In 2001, the services
sector had more workers with secondary and tertiary education than
industry (see Figure 4.4).
Broadberry and Gupta (2010) break down comparative labour pro-
ductivity levels for India and Britain by the three main sectors of agri-
culture, industry, and services. In the early 1870s, an average Indian
agricultural worker produced slightly more than 10 per cent of the out-
put produced by an average British agricultural worker. By the 1970s,
this had fallen to around 2 per cent and it was even lower by the 1990s.
The comparison of agricultural productivity is not meaningful, given
the large differences in the share of employment in agriculture. More
meaningful comparison can be made with respect to industry and ser-
vices. Output per worker in the non-agricultural sectors, industry, and
services was 18 per cent of the British level in 1871, rising to 25 per
cent in 1930. The increase reflected the growth in modern, large-scale
industry and declining importance of small-scale artisanal industry in
this sector. The relative position of the service sector also showed a simi-
lar change. Since 1950, the relative performance of industry and services

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 128 Origins of India’s Service Sector Advantage

Table 4.11 Sectoral labour productivity in India

relative to Britain

Agriculture Industry Services GDP

1871–1973 11.2 18.2 18.1 15.1

1900/01 10.4 17.3 15.6 13.2
1910/11 11.1 24.2 17.7 14.4
1920/21 9.8 21.1 21.1 13.2
1929/30 8.3 25.3 25.2 14.2
1946/7 7.0 18.1 23.2 12.8
1950/51* 5.4 14.6 17.5 9.3
1960/61* 4.3 16.4 20.0 9.7
1970/71* 2.3 17.3 22.6 9.4
1980/81* 1.6 16.1 29.3 10.2
1990/91* 0.9 18.3 33.0 11.0
1999–2000* 1.0 15.8 32.8 11.4

Note: * Refers to India after independence

Source: Broadberry and Gupta (2010)

Figure 4.4 Human capital by sectors (2001)

Source: Broadberry and Gupta (2010)

has been quite different. The relative labour productivity in industry

remained at around 15–18 per cent, but the Indian service sector has
narrowed the gap with Britain (see Table 4.11). Indian labour productiv-
ity was one-third of the British level in 2000. The unusual performance
of the service sector is not a recent phenomenon. The advantage the

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 4.7 Conclusion 129

sector has enjoyed goes back to the colonial period and a historical per-
spective helps in understanding India’s advantage in services.
Earlier in the chapter I discussed the emphasis on secondary and ter-
tiary education by the colonial administration. Caste-level literacy rates
from 1901 shown in Table 4.4 show the high literacy rates among cer-
tain castes in service sector occupations. The demand for higher educa-
tion was high among this group and they were able to move into public
administration, public services, trade, and banking. In recent decades, as
in colonial India, the highest concentration of human capital was in the
service sector. A long run assessment of human capital in different sec-
tors shows that the services sectors such as trade and public administra-
tion have always required a literate and numerate workforce. The biased
emphasis on higher education has colonial origins and has provided an
advantage to the service sector. The resulting concentration of human
capital in services rather than manufacturing may explain India’s service
sector-led growth.

4.7 Conclusion
In this chapter, I have discussed the historical origins of India’s ser-
vice sector-led growth. Occupations that required literacy gave certain
castes an advantage in moving to the emerging modern services that
required educated workers. From the late nineteenth century, many of
the upper castes shifted from their traditional occupations into the mod-
ern sectors, such as public administration, law, medicine, and education.
Traders invested in modern industries. The demand for industrial work-
ers in modern industries saw migration from rural to urban areas. Little
changed in agriculture.
The colonial education system invested more in secondary and ter-
tiary education without prioritising universal primary education, as in
most countries in Europe, North America, and Japan in the nineteenth
and early twentieth century. The concentration of human capital in the
service sector gave this sector an advantage that had long term conse-
quences and the bias towards higher education continued in indepen-
dent India. The service sector has enjoyed higher labour productivity for
over a century. India’s service sector-led growth in recent decades has
historical origins.

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 5 Region, Income, Caste, and Gender
Continuity and Change

In this chapter, I will look at four different aspects of inequality in India

and assess the changes that have occurred over time and the continuity
that still manifests in many aspects of economic and social life. These
four aspects will be region, income, caste, and gender. The Indian
­subcontinent is diverse in geography, cropping pattern, and economic
­activity. Caste has defined occupation and access to opportunities in
Indian society over centuries. Finally, the difference in the social and
economic status of women from ancient times characterizes an ­important
inequality: the preference for sons over daughter and a lower status of
women in society.
The historical uneven development of regions has persisted in some
dimensions and changed in some aspects. From 1950, policies have
targeted aspects of these inequalities to bring about change. The abo-
lition of the landlord system changed the dominant position of the tra-
ditional landowning groups. Industrial licensing, which was discussed
in Chapter 3, considered the relative backwardness of regions in deci-
sions on the location of new industries. Independent India imple-
mented affirmative action in jobs and education for the lowest castes
in Indian society from the 1950s. Changes in inheritance laws by dif-
ferent states opened the door to equal inheritance by women. More
recently, various interventions have been made at the province level
to introduce economic support for the girl child. This chapter takes
a long view of changing inequalities as well as persistent inequalities
for regions, groups defined by income, caste, and gender. I will start
with the regional inequalities, followed by measures of income and
wealth inequality and the changes from ancient inequality to inequal-
ity in modern India. The third section will emphasize caste inequality
in access to jobs and education. Finally, I will discuss the unequal
gender norms that have been highlighted in the literature on missing
women.

130

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 5.1 Regional Inequality 131

5.1 Regional Inequality

From evidence based on travel writers and the surveys by Francis
Buchanan Hamilton in the first decades of the nineteenth century, we
get a glimpse of the differences in regional prosperity and deprivation.
The prosperous regions in the seventeenth and eighteenth centuries
were the urban centres, but this too was limited to certain groups:
the nobility and wealthy merchants. The nobility and the merchant
elites had amassed wealth and spent it on luxury consumption of non-
agricultural goods. Artisans produced a wealth of industrial goods,
including textiles, jewellery, and metal ware and the artisanal sector
prospered in the urban centres. The image of a prosperous urban India
has been held up as a symbol of industrial capability and prosperity of
the nation.
The reality for the average Indian was quite different. Accounts
of travellers from the fourteenth century discussed the regional
differences, the opulence of the elites, but also pointed to the sim-
ple lifestyle of the average person based on consumption of food,
the clothing they wore, and the dwellings where they lived. The pic-
ture from qualitative sources is one of urban prosperity among certain
groups and rural poverty for most (Pelsaert 1978; Tavernier 1889;
Bernier 1916). Today, this would be considered as an indicator of
inequality in society. There would be similar descriptions of what is
observed in India today in terms of the luxurious lifestyles of the rich
and the destitution of a large number of people living below the pov-
erty line. Evidence from seventeenth-century India indicates inequal-
ity of a larger magnitude.
The standard of living in rural India depended on agricultural pro-
ductivity. The evidence on agricultural productivity differences is
sketchy. Francis Buchanan surveyed different regions in eastern and
southern India. His evidence on output per acre shows differences
across the districts of Shahabad and Dinajpur in eastern India and
Mysore and Canara in southern India. Sivramkrishna (2015) analyses
data collected on Buchanan’s journey through Mysore and Canara
and finds that areas with higher productivity in land were more pros-
perous, but none of this evidence allows a systematic assessment of
regional inequalities across the country because the surveys covered
only a few districts. From the second half of the nineteenth cen-
tury the available data allows a more systematic analysis of regional
differences.
One of the first measures of regional inequality in India comes from
the work of Caruana-Galizia (2013), who estimates regional income

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 132 Region, Caste, and Gender: Continuity and Change

Table 5.1 Per capita provincial GDP in Rupees in 1948 prices

1881 1891 1901 1911

Assam 284 272 332 336

Bengal and states 195 195 190 158
Bombay and states 263 272 278 310
Central provinces and states 195 188 203 257
Cochin State 222 206 219 346
Hyderabad State 449 256 279 380
Madras and states 143 156 172 195
Mysore State 156 176 189 210
Punjab and states 180 187 221 276
Rajputana and states 221 278 260 278
Travancore 318 288 229 394
United Provinces and states 146 163 151 161

Note: States refer to princely states and are included in the estimates of
several provinces
Source: Caruana-Galizia (2013)

from 1875 to 1911 and shows that GDP per capita varied by province.
Broadly speaking, Bombay Presidency had higher per capita GDP from
1881 relative to the eastern province of Bengal. This difference became
larger over time as Bengal declined and Bombay grew (see Table 5.1).
Other provinces that stand out as relatively prosperous were the princely
states of Cochin, Travancore, and Hyderabad. GDP per capita in
the northern province of Punjab grew over time, assisted by the canal
construction. Here too the successful increase in agricultural produc-
tivity was an important factor. The poorest regions were the Madras
Presidency and states and the United Provinces (see Table 5.1).
Roy (2014) has focused on the regional differences between British and
princely states, regions of landlord and non-landlord systems, and geo-
graphical zones of coastal and riverine flood plains and the drylands. Roy
finds that British states had lower revenue per square mile compared to
the princely states, and within British states there were significant differ-
ences in revenue per capita. Revenue per capita was lower in the coastal
and the floodplains compared to the drylands. This somewhat counter-
intuitive outcome may be explained in terms of lower investment in land
and declining yields in densely populated fertile regions. Regions under
the landlord system typically generated lower revenue per capita.
Figure 5.1 looks at the correlation between GDP per capita at the
province level in 1911 and 2003. The correspondence is not precise
given the changing borders and formation of new provinces. The graph
shows a positive correlation between the colonial provinces and what is

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 5.1 Regional Inequality 133

Figure 5.1 Correlation between GDP per capita for provinces (1911
and 2003)
Note: A lower rank indicates higher per capita GDP. Kerala is matched
with the Princely States of Travancore and Cochin.
Source: Purfield (2006) for 2003 and Caruana-Galizia (2013) for 1911

roughly the equivalent province today. The richer provinces in 2003 were
also richer in colonial India. The provinces of Bombay Presidency and
Bombay States, which correspond to Maharashtra and Gujarat today,
were the richest region in British India, though it ranked behind the
princely states of Travancore, Cochin (Kerala today), and Hyderabad
(Andhra Pradesh). Today both Maharashtra and Gujarat rank among
the richest states in India and Kerala and Andhra Pradesh have fallen
behind. The rise of Bombay Presidency as the industrial centre is dis-
cussed in Chapter 3. It differed from the other industrial centre, Bengal,
in terms of the dominance of Indian commercial and industrial interests
from the nineteenth century. Bengal, where the British commercial and
industrial interests dominated, had one of the lowest per capita GDP in
1911 and shows an improved position in the ranking of per capita GDP
in 2003. However, a comparison between Bengal Presidency and today’s
West Bengal is problematic as the geographical boundary of West Bengal,
post partition, is very different from that of Bengal Presidency in colonial
India. Although the industrial hub around Calcutta was prosperous, the
agricultural regions in the rest of Bengal had gone into a decline.
Punjab and Haryana in 2003 were among the richest provinces. Punjab
ranked sixth in 1911. The geographical borders of Punjab changed too

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 134 Region, Caste, and Gender: Continuity and Change

as a result of the partition. Punjab had a dense irrigation network in

colonial India and was the first region to see the fruits of the Green
Revolution in the 1970s. The United Provinces in 1911 was one of the
poorest regions and has remained relatively underdeveloped in 2003.
The dominance of the upper castes among the economic elites and the
conflict over political power in post-independence Uttar Pradesh did not
lead to a path to development (Kohli 2012, p. 166).
Even when considering more recent changes in different regions,
Bhattacharya and Sakthivel (2004) find no convergence between rich and
poor provinces after the economic reforms. The more industrial prov-
inces, Tamil Nadu, Maharashtra, and Gujarat, have grown faster than
the less developed provinces, Bihar, Orissa, and Uttar Pradesh. Purfield
(2006) finds a very stable pattern in ranking of provinces by GDP per
capita between 1971 and 2003. Maharashtra and Gujarat are among the
top four richest states together with Punjab and Haryana. The prosperity
in the states of Maharashtra and Gujarat is not a recent phenomenon.
As Figure 5.1 shows, the development of this region has origins in the
colonial era. Punjab too has benefitted from the irrigation canals built
in colonial India. Uttar Pradesh, Bihar, and Orissa at the lower end of
economic development in 2003 were also poorer in 1911. Persistence of
history has been discussed in many different contexts (Acemoglu et al.
2001; Nunn 2008; Dell 2010). The regional inequality in India can in
part be associated with the impact of colonial policy in different regions.

5.2 Regional Differences in Poverty

To understand the regional inequality in colonial India, it is not suffi-
cient to look at province level per capita GDP alone. One of the key
measures of economic development is the poverty–headcount ratio, or
how many people are below the poverty line as a share of the population.
The poverty line is the minimum income required in a country to meet
the basic needs of individuals: food, clothing, and shelter. In terms of
daily requirement of calories of an average person, the poverty line con-
siders 2400 calories to be a requirement in rural areas and 2100 calories
in urban areas. Different countries adopt their own measure of what
constitutes the minimum level of income. The World Bank uses a daily
dollar rate as a measure for comparison across countries.
Another concept that is used to measure the incidence of poverty is
the ‘poverty gap index’. This is defined as the gap between mean income
of people below the poverty line and the poverty line as a ratio of the
poverty line. The larger the ratio, the more significant is the incidence of
poverty. Most indicators of poverty are correlated with poor nutrition,
access to education, and life expectancy.

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 5.2 Regional Differences in Poverty 135

60
55.2
53.1

50
47.4
45.3 45.4 45.2 44.9 45.4
44.3
42.9
Poverty–headcount ratio

40
36.9
35.5 35.2 35.7

31.9
30

24.3 23.7
22.1
21
20 20.7
20

10

0
1951 1961 1971 1983 1991 2001 2006
NSS rounds

Urban Rural All India

Figure 5.2 Poverty–headcount ratio (1951–2006) (measured in the

various rounds of the National Sample Survey)
Source: Datt and Ravallion (2010)

The Indian National Congress had raised the issue of tackling pov-
erty even before independence. The National Planning committee dis-
cussed a poverty line of Rs. 15 to Rs. 20 per person per month in 1944.
Successive governments after independence specified poverty reduction
as an objective and the five-year plans included it as a goal. The Planning
Commission discussed figures of Rs. 20 to Rs. 25 per month in 1962.
The numbers were revised over time. The Tendulkar Committee of
2005, headed by the well-known economist, adopted their own measure
for urban and rural India at Rs. 578.80 per capita per month and Rs.
446.68 per capita per month, respectively.
The evidence on poverty from 1951 comes from the work of Gourav
Datt and Martin Ravallian. Figure 5.2 shows the changes in the poverty–
headcount ratio between 1952 and 2003. Until 1978, there were fluc-
tuations, but no decline. The poverty–headcount ratio rose in the late
1960s following the agricultural crisis and began to decline from 1980
following the economic reforms. It declined slowly from 43 per cent in
1983 to 36 per cent in 1991 and 21 per cent in 2006 (see Figure 5.2).
The slow decline particularly stands out in comparison to the share of
the population that was pulled out of poverty in China since the 1980s,
where the poverty–headcount ratio declined from 73 per cent in 1981 to
45 per cent in 1993 to 12 per cent in 2005 (Ravallion 2011).

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 136 Region, Caste, and Gender: Continuity and Change

Table 5.2 Changes in poverty gap and poverty–headcount ratio

Poverty–headcount
Poverty gap index ratio (per cent)

1957–1960* 1990–1994* 1960* 1983** 2000**

Poor states
Bihar 22.4 16.4 64.5 52.2 46.9
Uttar Pradesh 14.3 10.6 47.4 47.1 33.0
Orissa 20.3 7.4 60.9 65.3 46.3
Madhya Pradesh 19.4 12.7 56.7 49.8 38.8
Rajasthan 14.3 12.5 46.4 34.5 20.4
Middle income states
Andhra Pradesh 22.9 7.7 65.1 28.9 18.8
West Bengal 13.7 6.5 50.3 54.8 32.1
Kerala 28.1 8.0 69.2 40.4 14.5
Karnataka 17.5 12.9 54.8 38.2 25.6
Rich States
Tamil Nadu 26.2 11.0 69.7 51.7 21.5
Punjab n.a n.a 31.2 16.2 6.0
Haryana n.a n.a 31.2 21.4 11.8
Gujarat 18.6 9.6 56.8 32.8 15.5
Maharashtra 21.9 14.4 65.9 43.4 28.7

Source: *Datt (1998), **Ahluwalia (2000)

While the poverty–headcount ratio has declined everywhere in India,

the richer states have been more successful in reducing poverty. The
differences in decline in poverty across the provinces can be seen in
Table 5.2. Kerala is a success story of poverty reduction among the
middle-income provinces. West Bengal, too, has seen a significant
­
decline in poverty. Among the rich provinces, Punjab, Haryana, Gujarat,
and Maharashtra have seen large reductions in poverty between 1960
and 1980 and the trend has continued. Punjab had the lowest poverty–
headcount ratio in 2000. Maharashtra has seen a slower decline com-
pared to the other three rich states. The poor states have also seen a
decline in the poverty–headcount ratio, but the numbers remained high
even in 2000. The poverty gap index declined in all provinces, but the
decline was slow in the poorer provinces.
Kohli (2014) points to the political divide across provinces that have
successfully reduced poverty and those that did not do as well. Provinces
such as Kerala and West Bengal adopted policies of redistribution under
left wing governments. In the southern provinces there was a decline
in the dominant position of the elites in politics from early twentieth

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 5.2 Regional Differences in Poverty 137

18,000

16,000

14,000
GDP per capita in 2003

12,000

10,000

8,000

6,000

4,000

2,000

0
0 5 10 15 20 25 30 35 40 45 50
Poverty headcount ratio in 2000

Figure 5.3A Correlation between per capita GDP for the provinces
(2003) and poverty–headcount ratio (2000)
Source: Ahluwalia (2000)

century. By contrast, in the northern provinces of Uttar Pradesh and

Bihar, the landowning elites and high caste groups held political power
until recently and maintained their privileges (Kohli 2012, pp. 134–136).
Overall, there is a negative relationship between GDP per capita of the
province and the poverty–headcount ratio (see Figure 5.3A). The rela-
tionship between per capita GDP growth post economic reform in the
1980s and 1990s and the poverty–headcount ratio is also negative (see
Figure 5.3B). This suggests that growth has been one of the factors in
pulling people out of poverty. However, relying on growth alone has not
been adequate and poverty reduction differs across comparable provinces.
Ravallion and Datt (2002) show that, between 1960 and 1994, the
decline in poverty across states depended on the increase in non-farm
activity, but the responsiveness of poverty depended on the initial con-
ditions in the rural economy. Provinces differed in poverty reduction
due to initial differences in human capital and land distribution in 1960.
More equal land distribution and higher literacy reduced poverty faster
in response to rise in non-farm activity. Datt and Ravallion (2002)
show that more than half the difference between Bihar and Kerala in
the relationship between poverty–headcount ratio and non-farm out-
put is attributable to the latter’s substantially higher initial literacy rate.
Female literacy, which was lower than male literacy everywhere, is a

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 138 Region, Caste, and Gender: Continuity and Change

4.5
Growth in GDP per capita (1980-2000)
4

3.5

2.5

1.5

0.5

0
0 5 10 15 20 25 30 35 40 45 50
Poverty headcount ratio in 2000

Figure 5.3B Correlation between per capita GDP growth for the prov-
inces (1980–2000) and poverty–headcount ratio (2000)
Source: Bhattacharya and Sakthivel (2004) and Ahluwalia (2000)

80

70

60
Literacy in 1973

50

40

30

20

10

0
0 5 10 15 20 25 30 35 40 45 50
Poverty headcount ratio in 2000

Figure 5.3C Correlation between literacy in 1973 and the poverty–

headcount ratio for provinces (2000)
Source: Ahluwalia (2000)

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 5.3 Income Inequality 139

good indicator of the differences in initial conditions. In Kerala, female

literacy was 39 per cent in 1960 and in Bihar it was 7 per cent. Poverty–
headcount ratio in 2000 had a negative relationship with literacy in 1973
(see Figure 5.3C). India has seen a much slower increase in literacy com-
pared to several other countries, including China. In 2005, 22 per cent of
men and 42 per cent of women were not literate and only 72 per cent of
all primary school-age children were in education (Kohli 2014, p. 139).
Measures of poverty disguise some of the inequalities that have
been slower to erode. Indian children show high levels of stunting
(Jayachandran and Pande 2017). The share of the Indian population
that consumes less-than-adequate calories rose from 65 per cent in 1983
to 76 per cent in 2005 (Kohli 2014, p. 138). This decline in calorie
intake is across all income groups, despite rising incomes, and no long
term changes in relative price of food (Deaton and Dreze 2009).

5.3 Income Inequality

Another way to think about distributional issues in a society is income or
wealth inequality. Land inequality is often used as a measure of wealth
inequality in agricultural economies and is measured using the Gini coef-
ficient. The Gini coefficient lies between 0 and 100 as a measure of dis-
tribution of income or wealth in a population. The lower the value of the
Gini coefficient, the more equal is the distribution of income and wealth
or any other economic indicator of asset ownership. According to World
Bank’s most recent measures of income inequality, in 2014 South Africa
had a Gini coefficient of 63 and in 2019 Brazil stood at 53. These are
among the most unequal societies. By comparison, in 2011 the Indian
Gini coefficient was lower at 36. South Korea’s Gini coefficient was even
lower at 31 in 2016. India ranks high at 82 in wealth Gini coefficient.
In their measurement of ‘ancient inequality’ Milanovic et al. (2010)
suggest that in societies at a low level of development, when average
income is very low, inequality is low as surplus above subsistence for
the population is small. As income rises, the surplus increases and the
scope for extraction of income above subsistence expands. They mea-
sure pre-industrial income inequality in twenty-eight societies starting
from the Roman Empire to the year of Indian independence and distin-
guish between inequality between social groups and inequality within
these groups. For India, the data is measured in two historical contexts.
It compares inequality at the end of the Mughal Empire and at the end
of British rule. In Mughal India they consider four economic groups: the
nobility and zamindars, the rest of urban India (including occupational

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 140 Region, Caste, and Gender: Continuity and Change

Table 5.3 Long-run between and within group income inequality

in India

Between-group Gini Within-group Gini

Mughal India 1750 38.5 48.9

India 1947 48.0 49.7
Average for 28 pre-industrial 44.8 45.7
societies
India 2004 NA 32.6
Average for the modern 41.1
counterparts

Source: Milanovic et al. (2010)

groups, merchants to sweepers), the village economy, and lastly, the

tribal economy. The share of these groups in the population and in
income is estimated. For 1947, there are many more occupational cat-
egories: British officials and traders, the nobility and Indian capitalists,
petty traders, government and industrial workers, village rentiers, work-
ing land proprietors, share croppers and tenants, and landless peasants.
Table 5.3 shows the measure of inequality in India using two dif-
ferent Gini coefficients at three points in time, two historical and one
more recent. The first measures between-group inequality and the
second measures within-group inequality. Between-group inequality
in Mughal India was lower than the average for twenty-eight societies
(world) and also lower than the between-group inequality in India in
1947. Mughal India exhibited slightly higher within-group inequality
compared to the average for the pre-industrial societies. This could be
a result of the level of aggregation, but it is likely that there were big-
ger differences in assets owned within social groups, such as industrial
interests and agricultural interests. However, the difference between
industrial and agricultural interests in Mughal India was smaller. By
1947, the two measures of inequality looked similar. As Table 5.3
shows, within-group inequality was higher than the average for twenty-
eight pre-industrial societies. In the modern counterparts of this group,
India looks less unequal than the average for this group. On the other
hand, India has been more unequal than Japan in the twentieth century.
Inequality did not change significantly during colonial rule, with the top
1 per cent of income earners accounting for 15 per cent of the wealth
in 1750 and 14 per cent in 1947 (Milanovic et al. 2010). In India after
independence, the province level measures of the Gini coefficient in
1957–1960 and in 1990–1994 indicate lower levels of inequality than

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 5.3 Income Inequality 141

Table 5.4 Changes in province-level inequality in

independent India

Rural Gini index Urban Gini index

1957/60* 1990/1994* 1957/60* 1990/1994*

Poor states
Bihar 29.8 22.4 31.2 31.7
Uttar Pradesh 30.9 28.1 37.5 32.7
Orissa 29.9 26.3 38.4 37.8
Madhya Pradesh 36.7 30.5 37.0 33.8
Rajasthan 36.5 28.0 32.0 29.6
Middle income states
Andhra Pradesh 31.1 28.4 31.7 32.5
West Bengal 27.4 25.7 32.3 34.4
Kerala 34.7 30.7 30.5 37.1
Karnataka 34.8 26.5 33.8 34.6
Rich states
Tamil Nadu 30.9 29.4 34.3 36.8
Punjab and Haryana n.a n.a n.a n.a
Gujarat 29.6 24.1 33.8 29.5
Maharashtra 29.2 30.2 35.5 34.9

Source: * Datt, 1998,

in the historical contexts. Rural Gini coefficients show some decline in

all provinces, except Maharashtra (see Table 5.4).
Yet another measure of income inequality in colonial India comes
from income tax records. The coverage of income tax in India has been
limited historically and continues to be the case. It excludes agricultural
incomes and all informal sector incomes. Although limited in scope, as
only a small section of the population paid income tax, the data was
collected systematically from 1885 and has been used by Alvaredo et al.
(2017) to construct the regional share of top incomes. Alvaredo et al.
(2017) and Banerjee and Piketty (2005) use the share of income earned
by the top 0.1 per cent and 0.01 per cent of the income distribution as a
measure of income concentration.
Their findings highlight two aspects of income concentration at the top
level. Unlike in the African colonies, where European expatriates and set-
tlers dominated top incomes, Indians were a significant share in the top 0.1
per cent of the income distribution (Alvaredo et al. 2021). This is likely to
reflect the dominance of Indians in commercial and industrial activities. In
Chapter 3, I have discussed the predominance of Indian entrepreneurs in
one of the largest modern industrial sectors, the cotton textiles. Alvaredo

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 142 Region, Caste, and Gender: Continuity and Change

et al. (2017) show that the Europeans accounted for not more than 40 per
cent of those in the top 0.1 per cent of income distribution. Europeans,
who served in the trading companies and other commercial activities, and
those working for the government were paid high salaries. The wealth of
the Indian urban elite in Bombay Presidency, today’s Maharashtra and
Gujarat, was already visible in the first decades of the twentieth century,
and by 1947 an Indian elite dominated the top income groups.
A second insight from the data is that the entry of Indians in the top
income group is also reflected in the changes in the share of provinces in
top incomes. The Bengal Presidency had the largest concentration of top
incomes in 1885. Bombay Presidency was the second largest (Alvaredo
et al. 2017). British interests were dominant in Bengal, while Indian
interests were more important in Bombay. The position of Bombay and
Bengal Presidencies in income concentration switched over the next
decades. At the time of independence, Bombay Presidency had the larg-
est share in top incomes. As we saw in Chapter 3, Bombay and Bengal
were the two most industrial regions and the income tax data covers the
non-agricultural occupations.
Alvaredo et al. (2017) find a U-shaped pattern between 1885 and
1946 (see Figure 5.4). The top income share declined until the early
1920s and then rose again. The authors attribute the decline to slower
growth of the modern non-agricultural sector in the early twentieth cen-
tury. The faster growth of the new industries under Indian ownership
may explain the rise from the 1920s.
Figure 5.4 shows a sharp decline in the share of top incomes after
1950. How did independent India deal with income inequality and how
did this change over time? In Chapter 2 we discussed the abolition of the
privileges enjoyed by the rulers of the princely states. The privy purse
given to the ‘princes’ was proportional to the territory they handed over to
the Indian Union (Roberts 1972). The Privy Purse Act of 1970 removed
the compensation given to the ‘princes’. The Nizam of Hyderabad was
listed among the richest people in the world in 1937 by Time Magazine
(Kumar 2020). The wealth of the ruling elites of the princely states was
significant. The changes in taxation on wealth via the Estate Duty and
Gift Tax Act of 1953 had an impact on wealth inequality as these taxes
became more progressive between 1953 and 1991 (Kumar 2020).
Longer term evidence from 1922 come from Banerjee and Piketty
(2005). They show that, after independence, there was another
U-shaped evolution of the top income shares (Figure 5.4 combines data
from 1885 with the data from 1922 to 2000). The falling share of top
incomes in the first thirty years after independence was quite dramatic
under the Nehruvian policies of public sector-led industrialization, where

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 5.3 Income Inequality 143

Figure 5.4 Changes in the top income shares (1885–2000)

Source: Alvaredo et al. (2017), figure 1, Copyright Elsevier

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 144 Region, Caste, and Gender: Continuity and Change

Table 5.5 Share of growth captured by income groups

(distribution of per adult pre-tax income)

Share of growth captured Share of growth captured

Income group (1951–1980) (1980–2015)

Total 100 100

Bottom 50 per cent 28 10.4
Middle 40 per cent 49 21.2
Next 9 per cent 24 40.0
Top 1 per cent 0.9 28.3
Top 0.1 per cent −1.8 11.3
Top 0.01 per cent −1.0 4.8
Top 0.001 per cent −0.4 2.0

Source: Chancel and Piketty (2019)

regulations restricted the role of the private sector. Although economic

planning did not put India on a high growth path, it reduced income
concentration. The share of top incomes declined significantly.
After 1980, the share of top incomes began to rise again following
removal of restrictions on private investment, but it did not go back to
the 9 per cent share of the top 0.1 per cent in 1946. Colonial India
shows higher inequality using income share of the top 0.1 per cent as
a measure. The decline in inequality under the Nehruvian policies and
its increase with economic reforms is convincingly shown in the work
of Chancel and Piketty (2019). This is reproduced in Table 5.5, which
shows that 28 per cent of the growth in income between 1951 and 1980
benefitted the bottom 50 per cent. The share declined to 10 per cent
after 1980, while over 11 per cent of income growth went to the top 0.1
per cent. The middle forty per cent of the population have benefitted
less from growth than in the comparable group in the USA, Europe and
China (Chancel and Piketty 2019).

5.4 Caste Inequality

An important manifestation of inequality in India is through the hier-
archy of the caste system. The occupational segregation by caste
enforced through hereditary membership and endogamous marriage
(Beteille 1965, p. 46) created inequality in wealth and social status.
Occupation among Hindus was caste dependent and the notions of
pollution and purity within the caste system prevented occupational
and income mobility. Sociologists have debated if the salience of caste

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 5.5 Caste in Colonial India 145

was a product of Hindu tradition (Dumont 1970) or an outcome of

the colonial censuses (Dirks 2001). In his presidential address to the
Indian History Congress of 1990, Vivekanand Jha pointed to discus-
sion by the sociologists Karve and Malik on the locational segrega-
tion of occupation-based communities in the ancient civilization of
Harappa (Jha 1991).
As discussed in Chapter 2, the Indian caste system comprises four
varnas: Brahmans (the priests), Kshatriyas (the warriors), Vaishyas (the
trading professionals), and Shudras (castes involved in other menial
occupations). The occupation categories by subcastes or jatis, which
are numerous, determined the community-specific norms of hierarchy
and endogamous marriage conventions (Jodhka 2012). It is in this con-
text that caste hierarchy was defined at the local level and continues
to be the case. The term ‘dominant caste’ in a region was defined in
terms of their socioeconomic strength (Vaid 2014). Outside the some-
what fluid configuration of economic power in the hands of upper and
middle castes were the ‘untouchable castes’. They were in occupations
considered to be ‘unclean’, such as scavenging, cleaning, and orga-
nising funeral pyres.

5.5 Caste in Colonial India

Caste was mentioned as an economic and social category in the travel
accounts of Francis Buchanan in 1807. Brahmans were at the top of
this hierarchy and the Shudras at the bottom. The rulers of the princely
states at the top of the political hierarchy were not necessarily Brahmans,
but Kshatriyas (Bayly 2001). The economic dominance of upper and
middle castes was varied across regions. Different caste groups could
be the dominant caste in a region. Within-group hierarchy was not just
specific to the Hindus, it permeated all religions in India. Bayly (2001)
refers to the caste-like distinction between a Sikh cultivator and a trader
in the Punjab (p. 18). The Muslims and the Christians had their own
specific hierarchies. Although caste is not intrinsic to Islam, occupation-
based hierarchies similar to the Hindu caste system existed in the Indian
subcontinent (Ahmad and Chakravarti 1981). The Khoja and Bohra
Muslims were involved specifically in trade and industry. Therefore,
community-specific occupation built into the social structure a lack of
social mobility.
Indian censuses from 1901 enumerated population, marital status,
literacy, and infirmity by caste. It provided data on caste composi-
tion at the level of districts. The landlords were typically upper caste.
Landowning peasants belonged to certain agricultural castes. Other

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 146 Region, Caste, and Gender: Continuity and Change

service providers in the rural economy mostly belonged to the lower

strata of caste hierarchy. The landless labourers came from the lower
levels of the hierarchy. The land tenure systems entrenched the caste
hierarchy. In landlord regions upper caste domination was stronger. The
Punjab Land Alienation Act of 1901 specified that land could only be
owned by agricultural castes to prevent land ownership passing into the
hands of the non-cultivating castes. Cassan (2015) finds evidence of the
manipulation of caste identity to be declared as an agricultural caste fol-
lowing the Act.
The traders came from specific castes and engaged in local and inter-
regional trade and moneylending. These groups varied by region. The
Marwari traders, who had migrated from Rajasthan, became important
participants in grain trade and trade in other agricultural commodities
in all regions. The Vanis in western India, the Chettiars in the south,
and the Khatris in the north were the caste groups engaged in agricul-
tural trade and moneylending. Several trading groups were involved in
trade in raw cotton in western India and became industrial entrepre-
neurs, as discussed in Chapter 3. Their occupational shift from trade to
industry used ties of caste and religion. This was first seen among the
Hindu castes of Bhatias and Vanias and the minority religious groups of
Parsis, Khoja Muslims, and Baghdadi Jews, who traded in raw cotton
and set up the cotton textile industry in Bombay. In the aftermath of
the First World War, the Marwari traders moved into the jute industry
and, following the Great Depression, the Chettiars moved into a variety
of industries. However, this pattern of occupational change was seen
mainly among the trading groups, who belonged to the upper and mid-
dle castes. Brahmans and other upper castes moved into the high skilled
professions in the modern sectors. Within the upper castes, therefore,
there was mobility across occupations. The lack of mobility was most
pronounced for the lowest castes, who had little access to occupations of
the upper and middle castes.
Non-agricultural jobs in rural and urban India were caste based.
Weavers and artisans typically belonged to certain castes. Caste and
community was important in recruitment of industrial workers in the
early phases of industrialization. Cotton and jute mills, as well as tea
plantations, employed ‘sirdars’ or labour recruiters, who relied on com-
munity and caste networks of the native villages. Regional and sectoral
labour markets were often defined by caste and linguistic groups (Das
Gupta 1981). Within the industrial workspace different social groups
had more interactions, but caste identities and segregation by jobs did
not disappear within a firm. The constraint that certain jobs could only
be done by certain castes introduced a lack of mobility.

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 5.5 Caste in Colonial India 147

Table 5.6 Caste literacy by province (1931)

Caste with
All Hindu Brahman highest literacy Lower castes

Assam 11.9 10.6 – 23.6 (Ahom) 3.1

Bengal 5.3 15.7 43.1 62.6 (Baidya) 5.0
Bihar and Orissa 6.9 5.5 19.2 36.2 (Kayastha) 0.6
Bombay 10.8 10.2 51.0 51.0 (Brahman) 2.8
Central Provinces 6.6 6.4 35.2 35.2 (Brahman) 1.5
and Berar
Madras 10.8 10.4 54.3 54.3 (Brahman) 1.5
Punjab 6.3 9.6 15.1 27.6 (Khatri) 0.8
United Provinces 5.5 5.0 15.9 44.6 (Kayastha) 0.5
British India 9.3 8.4 33.4 33.4 (Brahman) 1.6

Source: Chaudhary (2015)

One measure of caste inequality in colonial India can be found in

access to education. Indian literacy was very low compared to most
countries in 1947, as we have seen in Chapter 4. But there was a large
variation across social groups, in particular, across castes. The upper
castes that include Brahmans, Khatriyas, and other professional groups
had relatively high literacy compared to the lowest castes. Chaudhary
(2015, pp. 166–68) shows that the literacy rate for Brahmans was 33 per
cent in 1931, whereas for the lowest castes, the figure was 1.6 per cent.
The most literate caste was not always the Brahmans. Table 5.6 shows
the province-level variation of literacy rates by upper castes and the liter-
acy gap between the upper and the lower castes. Everywhere this gap was
large and the common factor was the lack of access to education for the
lowest castes. As I have discussed in Chapter 4, the allocation of educa-
tion spending depended on district boards in which mainly upper castes
were represented. Districts with higher caste diversity had fewer primary
schools (Chaudhary 2009). Even when public schools were open to all
social groups, the segregation of upper and lower castes prevented wider
access to the children from the low castes (Chaudhary 2015, p. 174).
The missionaries often stepped in to provide education to the children
from low castes and tribes. Their impact was small.
A second measure of caste inequality in colonial India can be found
in the work of Guntupalli and Baten (2006). Using a survey-based
dataset on heights from all regions, they find significant differences in
male stature by caste and religion. In the literature on living standards
in history, heights are used as a proxy of well-being when systematic
evidence on income and consumption is lacking. Although heights did

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 148 Region, Caste, and Gender: Continuity and Change

1,720

1,700
Height in millimetres.

1,680

1,660

1,640

1,620

1,600
1915 1920 1925 1930 1935 1940

Upper caste Middle caste Scheduled caste

Scheduled tribe Muslim Jain Sikh

Figure 5.5 Differences in heights by social classes (1915–1940)

Source: Guntupalli and Baten (2006)

not change much over the first half of the twentieth century, the inter-
group difference in heights across caste and religion is suggestive of eco-
nomic inequality. Sikh men from the north were tallest. Jains, Muslim,
and upper caste men were taller than the middle caste and lower caste
men. As Figure 5.5 shows, the upper castes were taller than the lower
caste social groups. The evidence on differences in height by occupa-
tion, which is correlated with caste, also provides suggestive evidence
on economic inequality across social groups. The landlords were taller
than other agricultural groups, traders and professionals were taller than
weavers, potters, and other menial workers. The occupation-based dif-
ference in heights is indicative of inequality in income and consumption
across castes.

5.6 Caste and Mobility after Independence

There are two ways to understand social mobility in the caste system
(Vaid 2014). The first, following M. N. Srinivas’s characterization of
‘sanskritization’, is the upward social mobility of a caste as a group
adopting the conventions of a higher caste. The return migration of the

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 5.6 Caste and Mobility after Independence 149

Gujarati Kanbis, a cultivating lower caste, who had migrated to Kenya

in the first half of the twentieth century is an example of ‘sankritization’.
Upon their return, the group, which was now wealthier, had adopted
Brahmanical customs and rose in the caste hierarchy under the caste
name ‘patidar’ (Deshpande 2011, p. 53). The second path is an individ-
ual belonging to a particular caste moves out of the caste-based occu-
pation. Similar to the historical example of occupational shift by caste
groups from trade to industry (Gupta et al. 2022), there are examples
of occupational change by caste groups in more recent times. Among
them are the shift from agriculture to the garment industry in Tirupur by
the Gounder community (Banerjee and Munshi 2004) and the shift by
Kanbi Patels, a lower caste group involved in diamond cutting, to run-
ning the diamond sales network with the trading castes of Marwaris and
Jains (Munshi 2011). Caste networks provided the valuable insurance in
migration from rural to urban sectors (Munshi and Rosenzweig (2006).
India adopted one of the earliest interventions in affirmative active.
This was enshrined in the Indian Constitution formulated in 1950. B. R.
Ambedkar, an intellectual and political campaigner against the oppres-
sion of the caste system, was appointed the Law Minister by Nehru
and asked to draft the new constitution of India. The new constitution
guaranteed equal status to all social and religious groups and to men and
women. The limited franchise introduced by the colonial government
had given some Indians, both men and women, the right to vote in pro-
vincial elections. It required literacy and property ownership to be eligi-
ble to vote. Indian women had the right to vote well before Swiss women
were enfranchised in 1978. The Indian Constitution after independence
adopted universal adult franchise. The lowest castes in society were now
eligible to exercise their political right.
Another new intervention was affirmative action in public ­education
and public sector employment for the lowest strata of Indian ­society –
the lowest castes or ‘Dalits’ and the tribal people. The government
decreed that 20 per cent of jobs and university education was to be
reserved for the scheduled castes and tribes, using the acronym SC/
ST. A list of scheduled castes and tribes was announced, opening a
door to upward mobility for these groups. In 1989, under the premier-
ship of Vishwanath Pratap Singh, affirmative action was extended
to ‘other backward castes’ or OBCs. The enumerated castes were
mainly from the unprivileged social groups, but also included castes
that had been lower down the caste hierarchy historically but had
since then made economic gains. Over time the historical caste hier-
archy saw changes both in economic sphere and in political space.
Jaffrelot (2003) describes the emerging political competition between

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 150 Region, Caste, and Gender: Continuity and Change

established political parties and the caste-based regional parties in the

last decades of the twentieth century as a ‘silent revolution’ in Indian
politics. Groups that had been underrepresented in the political sys-
tem, particularly in northern India, made a claim on political represen-
tation. If the recording of caste by the colonial censuses had made caste
socially and economically more salient (Dirks 2001), affirmative action
made low caste identity more salient in the political space. Although
Indian censuses stopped recording information by caste after inde-
pendence, it remained an integral part of economic, social, and polit-
ical life in India after independence. Social scientists have relied on
survey-based evidence from the National Sample Surveys and National
and Family Health Surveys to understand how caste inequalities have
changed with policy interventions in the making of modern India.
What have been the economic and social consequences of this bold
policy intervention? Vaid (2014) suggests that although the lowest castes
experienced some changes in mobility, the overwhelming evidence is one
of intergenerational continuity and persistence in inequality at the high
and low ends of the caste distribution in occupations. The following sec-
tion summarizes some of the main conclusions in the literature.
The structural change in the Indian economy has shifted jobs away
from some traditional sectors and opened up new occupations for
lower castes. The lower castes moved to lower and medium jobs
in the new occupations, while high castes are in the upper tier jobs
(McMillan 2005). Desai and Dubey (2012) distinguish between
inequality of opportunity and inequality of outcome. The first relates
to equality in opportunity to education and jobs and the second is
conditional on acquiring the same education, are earnings or returns
to education equal across castes? Using National Sample Survey
data of 2006, Desai and Dubey (2012) find that scheduled castes
and tribes are less likely to own land and have less education. Kijima
(2006), using National Sample Survey data from 1983 to 1999, con-
cluded that there was some improvements in literacy by occupational
categories, but SC households earned lower returns to education and
were still disadvantaged in obtaining well-paid jobs. While the first
is an example of inequality of opportunity, the second is an example
of inequality in outcome. Sectors such as mining, construction, and
transport are relatively more open to lower castes, but they face bar-
riers to entry in professional jobs in health, education, finance, and
other high end services (Harriss-White et al. 2014, p. 67; Thorat and
Newman 2010).
The expansion of primary education has improved access to school
education for lower castes. However, there remain large differences in

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 5.7 Gender Inequality 151

literacy. Based on National Family and Household Survey data 1992/3,

77.44 and 78.12 per cent of the schedules castes and scheduled tribes,
respectively, had no education in 1992/93, in contrast with 59.2 per cent
in other groups (Deshpande 2001). Using the National Sample Survey
(NSS) of 2006, Desai and Dubey (2012) found that the upper caste
men aged 25–49 had 8.18 years of education, while men in scheduled
castes had 5.23 years. Hnatkovska, Lahiri, and Paul (2013) use NSS
data up to 2004/05 to show that the gains during the past two decades
have been more widespread and all sections of SC/ST households have
made gains in literacy, leading to some convergence in literacy and occu-
pational mobility between SC/ST and other castes. They argue, ‘Indeed,
it has now become far more likely that the son of a poor illiterate SC/
ST cobbler would become a machine worker with middle or secondary
school education having a much higher rank in his generation in income
distribution than his father did in his generation’ (Hnatkovska, Lahiri,
and Paul 2013).
Bertrand, Hanna, and Mullainathan (2010) show that affirmative
action successfully targets the underprivileged and has increased their
presence at the cost of upper caste students. Affirmative action has
increased college attendance of the targeted students, particularly at
higher-quality institutions. The SC/ST students graduate at the same
rate as others and enrol in competitive subjects, such as computer sci-
ence and electronics (Bagde et al. 2016). Overall, the evidence sug-
gests that the policy of affirmative action has had some success in
improving access to higher education and in occupational mobility,
although differences in labour market outcomes remain. The impact
shows a difference at the high end and the low end of the labour mar-
ket. Deshpande (2011) finds persistence rather than change in indi-
cators of caste development. The economic reforms have not broken
the correlation between upper castes and high-status professional jobs.
Deshpande and Ramachandran (2019) find that the caste gap has nar-
rowed in labour market outcomes in lower skilled jobs.

5.7 Gender Inequality

Cultural norms about women’s role in society have created inequalities
that are specific to India. Gender gaps in education and labour market
outcomes exist in all societies today. Men earn more than women and
have more skilled jobs. Women do a disproportionate share of house-
work and childcare and are less represented in high positions and in
political space. Where India is an outlier is in the demographic deficit
of women arising from the cultural norm of son preference and lower

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 152 Region, Caste, and Gender: Continuity and Change

Table 5.7 Changing life expectancy at birth

(1931–2001)

Year Male Female

1901–1910 22.6 23.3

1911–1920 19.4 20.9
1921–1930 26.9 26.6
1931–1940 32.1 31.4
1941–1950 32.5 31.7
1951–1960 41.9 40.6
1961–1970 46.5 44.7
1971–1980 50.9 50.0
1981* 54 54
1991* 59 60
2001* 63 64

Source: Padmanabha (1981), Census series, * World Bank

social status for women from birth to end of life. Amartya Sen (1992)
introduced the term ‘missing women’. The number of men and women
in a country are roughly equal. When the share of women falls short of
50 per cent, it points to the number of women who should have survived
but are missing in the population. It is seen as an indicator of lack of
care towards a girl child or unequal access to resources within the house-
hold for women as adults, leading to higher mortality among women
relative to men. In this section, I focus on this specific aspect of gender
inequality: the gender differential in the probability of survival, which is
not biologically determined. The demographic deficit is the number of
missing women.
In most societies, women live longer than men. In India, life expec-
tancy at birth for women was lower than that of men between 1921 and
the mid 1970s (see Table 5.7). The biological sex ratio at birth is 106
boys to every 100 girls. It reflects the physiological vulnerability of the
male foetus. Male infants are also more vulnerable. Historically, male
mortality at birth has been higher in most societies. In underdeveloped
societies, male mortality at birth is even higher as a consequence of poor
living standards and the poor health of the mother. Life expectation at
birth for male children typically rise with economic development and
changing disease environment.
In India, life expectancy at birth rose faster for males than for females
from the 1920s to 1970s as Table 5.7 shows. After 1981, female life
expectancy at birth edged above male life expectancy. Table 5.8 shows
a significant regional variation. By 1971, life expectancy for males and

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 5.7 Gender Inequality 153

Table 5.8 Changing life expectancy at birth by region (1931–1971)

1931 1971

Male Female Male Female

North 29.1 27.0 North

Rajasthan 49.2 49.2
Punjab 59.8 56.8
Haryana 59.0 55.6
Uttar Pradesh 45.4 40.5
West 29.2 29.9 West
Maharashtra 54.5 53.3
Gujarat 48.8 48.8
East
East 27.9 28.1
West Bengal 56.4 58.0
Bihar 54.2 51.5
Orissa 46.0 45.3
Central
Central 30.7 32.3
Madhya Pradesh 46.3 47.6
South
South 33.4 35.1
Andhra Pradesh 48.4 40.3
Karnataka 55.1 55.3
Tamil Nadu 49.6 49.5
Kerala 60.8 63.0

Source: Dyson (2019, tables 8.2 and 8.6)

females had risen in all regions but the regional variation in male and
female life expectancy showed persistence.1 The regions are divided into
north, south, east, west, and central. Even in 1931, male life expectancy
was higher in the north. The north has seen a persistent advantage for
males, while in the other regions life expectancy at birth was more equal
or there was a female advantage. I discuss the regional differences in sex
ratio at birth in 1931 and then look at the changing sex ratio in the young
over time. In recent decades in India, the sex ratio at birth is increasingly
biased towards males compared to the biological norm. The develop-
ments in medical technology, amniocentesis in the 1980s, and ultrasound
screening in the 1990s have increased parental choice and reduced the cost
of choosing the sex of the unborn child, leading to prenatal sex selection.

1
I compare 1931 with 1971, because from 1980 sex selection at birth was more feasible
due to available technology.

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 154 Region, Caste, and Gender: Continuity and Change

Table 5.9 Age-specific sex ratios in the age groups 0–15 by region
(1931) (males per 100 females)

Age groups

Region/Province 0–1 0–5 5–10 10–15

South
Cochin 100.6 100.8 94.4 102.2
Travancore 100.9 101.0 102.9 103.1
Hyderabad 89.9 91.3 108.5 110.6
Mysore 96.5 96.2 99.9 10.6
Madras 96.5 96.7 101.8 104.2
West
Bombay 99.8 99.1 111.5 116.3
Central Provinces and Berar 98.1 96.1 103.9 106.0
North
Rajputana 98.8 99.0 113.7 120.3
United Provinces 99.8 99.3 116.0 122.6
Punjab 102.3 104.2 116.4 122.8
East
Bihar & Orissa 98.2 95.3 108.7 112.6
Bengal 99.6 97.7 112.6 111.9
All India 98.8 97.9 109.9 113.6

Source: Bhaskar and Gupta (2007b)

What was the sex ratio in the young before availability of prenatal
sex selection? Was colonial India different from India after indepen-
dence? Table 5.9 reports the sex ratio in children from the census of
1931. The picture reveals that, in the age group 0–1, there were more
females than males in all regions except in Punjab and Travancore and
Cochin, the princely states which became the modern state of Kerala.
It is interesting that the two regions that differed from this general
picture did so for very different reasons. Qualitative evidence suggests
that the relatively higher sex ratio among children below the age of one
in Punjab reflects a strong son preference. By contrast, in Travancore
and Cochin, the high sex ratio is likely to reflect the superior position
of women within the household in this region and better health and
nutrition of the mother, which lowered male mortality (Bhaskar and
Gupta 2007b).
The Indian censuses noted that there was no systematic evidence
of infanticide, suggesting that it was practised in a few communities.
However, the census of 1901 referred to a widespread neglect of female
children, even though the practice of infanticide was limited:

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 5.7 Gender Inequality 155

Even if there was no deliberate sign of hastening a girl’s death, there is no doubt
that as a rule, she receives less attention than would be bestowed on a son. She
is less warmly clad, and less carefully rubbed with mustard oil as a prophylactic
against the colds and chills to which the greater part of the mortality amongst
young children is due, she is also probably not so well fed as a boy would be and
when ill, her parents are not likely to make the same strenuous effort to ensure
her recovery. (Report on the Census of India 1901, p. 116)

This is reflected in the deficit of girls that appeared more widely in the age
group 5–10. The gap widened in the age group 10–15 and partly reflects
high mortality at child birth for teenage mothers. Fenske et al. (2022)
confirm that the sex ratio is most male biased in the age group 10–20
across regions and religions. In India, the average age at marriage in 1921
was 13 years and, consequently, the age at first birth was in the teenage
years. High mortality at childbirth is, therefore, not surprising. Selective
evidence from Madras Presidency based on hospital births shows high
maternal mortality in teenage mothers (Fenske et al. 2022). The missing
women in this age group also partly reflects under reporting in this age bin.
Table 5.10 shows the changing sex ratio in the young over the twentieth
century. It provides a picture of persistence rather than change in regional
differences. Regions that exhibited son preference in the colonial period
continued to show a bias in the sex ratio in the age group 0–6. The male dis-
advantage at birth declined with economic development. In the regions that
had exhibited son preference in the colonial period, the sex ratio became
even more biased towards male children after 1980. This can be attributed
to the new technology in sex-selective abortion, particularly the use of ultra-
sound technology after 1990. In all regions sex ratio at birth has increased
over time, with the north and west seeing a dramatic rise. In particular,
Punjab and Haryana stand out as a case of rapidly rising male bias in the
sex ratio. Such an excess of males in the age group 0–6 can only be a result
of prenatal sex selection. While the demographic deficit in the population
below the age of six was due to a relative neglect for the girl child histori-
cally, the scope for active intervention with new technology has increased
sex selective abortions. Abortion for birth control has been legal in India.
Abortion for foetal sex selection has been illegal since 1994. However, anec-
dotal evidence and the male biased sex ratios at birth suggests that the prac-
tice flourishes. The extensive research in this field does not find evidence
of sex selection at first birth, but its probability increases from the second
birth if the first born is a girl child (Jha et al. 2006). Figure 5.6 shows the
correlation between 0–10 sex ratio in 1931 and 0–9 sex ratio in 2011 using
district-level data for greater accuracy. A strong positive correlation remains.
What accounts for the regional differences in son preference? The liter-
ature suggests various economic and social factors. Women’s participation
in economic activity may explain the north–south divide in the status of

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 156 Region, Caste, and Gender: Continuity and Change

Table 5.10 Changing sex ratio in children 0–5 (1931) and 0–6 for all other
years (males per 100 females)2

Region/Province A Comparable regions/provinces after 1947

1931 1971 1991 2001

South
Cochin 100.6 Kerala 102.5 104.4 104.1
Travancore 100.9
Hyderabad 89.9 Andhra Pradesh 100.6 101.6 102.8
Mysore 96.5 Karnataka 102.1 104.2 105.7
Madras 96.5 Tamil Nadu 100.9 105.5 106.2
West
Bombay 99.8 Maharashtra 102.4 105.7 109.5
Gujarat 106.5 107.8 113.2
Central Provinces and Berar 98.1 Madhya Pradesh 105.3 105.0 106.1
North
Rajputana 98.8 Rajasthan 107.0 109.1 110.0
United Provinces 99.8 Uttar Pradesh 106.4 107.6 109.3
Punjab 102.3 Punjab 113.3 114.3 125.3
Haryana 111.2 113.8 122.1
East
Bihar & Orissa 98.2 Bihar 103.5 104.4 105.5
Orissa 97.5 103.2 104.2
Bengal 99.6 West Bengal 97.7 103.5 104.2

Source: Gupta (2014)

women. Women work more in labour intensive agriculture and rarely use the
plough, which requires physical strength (Boserup 1970). In wheat-growing
regions of the north, women’s participation is low. In rice cultivation, on the
other hand, women’s labour is important. It is in these areas that women
enjoy higher social status (Bardhan 1974; Miller 1981). Carranza (2014)
looks at the differences in soil quality that make agriculture more suitable
for women’s work as a predictor of son preference. However, Fenske et al.
(2022) do not find a clear relationship between male-biased sex ratio and
rice and wheat agriculture using district-level data in their analysis.
Son preference is pronounced in the higher castes in northern India
based on qualitative evidence (Miller 1981). Hypergamy allows lower
caste women to marry into the higher caste and move into the caste
of the husband. High caste women are not permitted to marry below
their caste status. Analysing district-level data from Punjab, Bengal, and

2
The comparison of 0–10 in 1931 and 0–9 in 2011 is determined by the way the census
data is reported.

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 5.7 Gender Inequality 157

Figure 5.6 Correlation between 0–10 sex ratio (1931) and 0–9 sex
ratio at the district level (2011)
Source Fenske et al. (2022)

Madras from the 1901 census, Chakraborty and Kim (2010) find son
preference is strongest in the upper castes as reflected in the sex ratio in
the age group 0–5.
There are explanations based on social conventions. Early censuses
discussed the special position of sons in Hindu religion. Sons perform
funeral rites. Son preference is stronger among Hindus compared to
Muslims today. Fenske et al. (2022) found regional differences to be
salient. Within a region, differences across religious groups in colonial
India was not significant. Sex ratio among Hindus is more male biased
today. Differences in attitude to sex-selective abortion may explain the
emerging differences in sex ratio at birth among Hindus and Muslims in
recent times (Bhalotra et al. 2018).
Marriage conventions are yet another factor that can explain the
regional differences in son preference. Patrilocal marriage conventions
require women to reside with the husband’s family and sons provide
insurance in old age. This custom prevails widely across all regions in
India. Only a few communities, such as the Nairs of Kerala and the
Khasi tribe in Assam, practice matrilocal marriage. Neither of these
explanations can predict the strong regional divide. However, village
exogamy was widespread in the north (Gould 1961) but not in the

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 158 Region, Caste, and Gender: Continuity and Change

south. The marriage of a daughter in the north is typically arranged

outside the village and married women lose close contact with the
natal family, which may explain differences in the value of sons and
daughters.
Patrilineal inheritance norms that stipulate inheritance down the male
lineage is yet another explanation of preference for sons. Women are
given a dowry at the time of marriage and the sons, who reside with the
parents, inherit parental property. Dyson and Moore (1983) see inher-
itance and marriage customs as determinants of women’s status. There
is a north–south divide in inheritance. Property may be passed on to the
daughters in the south, but only to sons in the north. Under the Hindu
Succession Act of 1956, ancestral property could be inherited only by
sons. Reforms were introduced in certain provinces, starting with Kerala
in 1976, followed by Andhra Pradesh, Tamil Nadu, Maharashtra, and
Karnataka over the next two decades. The legal reform opened up the
way to inheritance by daughters. Roy (2015) found that, despite the
change, parents continued to disinherit their daughters and gave higher
dowries at marriage. Bhalotra et al. (2020) studied the effect of this legal
change on parental preference for sons and daughters and found that
in the regions that gave equal rights to daughters, there has been an
increase in the sex ratio at birth in favour of the male child. The results
point to the deep roots of inheritance norms and that son preference is
hard to change.
This discussion focuses on the bias against the girl child and the large
number of unborn girl children who would be counted among the ‘miss-
ing women’. In colonial India, the largest deficit of women appeared in
adolescence (see Figure 5.7). The pattern was the same in all regions
(see Figure 5.7). Recent data, however, shows a different picture.
Anderson and Ray (2010) calculate the number of ‘missing women’
by age cohort for 2000. They found a significant number of miss-
ing females in the age group 0–4, but large numbers are also miss-
ing in the adult population due to maternal mortality and death from
injury among women of child-bearing age and in older women above
sixty. There is no clear pattern in the age group where the sex ratio
is male biased across provinces, as shown in Table 5.11. Punjab and
Haryana have a large share of missing girls at birth. Other provinces,
such as Tamil Nadu and Kerala, have a large proportion missing in
the oldest age group. The paper suggests that, although son preference
and sex selection lead to ‘missing women’ in the population, other
forms of unequal access to resources, such as nutrition and health-
care, may explain the significant numbers that are missing in the adult
population.

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 5.7 Gender Inequality 159

Table 5.11 Missing women in Indian provinces

by age group (%)

At birth 0–15 15–45 45+

North
Haryana 42.4 24.3 9.1 24.1
Punjab 59.5 12.1 4.3 24.0
Uttar Pradesh 14.2 31.7 22.0 32.0
West
Maharashtra 12.3 15.1 12.7 59.9
Gujarat 25.8 24.2 14.7 35.3
East
West Bengal 1.1 17.3 21.5 60.0
Bihar 6.1 40.8 14.8 38.2
Orissa 19.9 16.5 18.4 45.3
Central
Madhya Pradesh 0 39.4 23.0 37.5
South
Andhra Pradesh 17.1 14.0 15.8 53.4
Karnataka 16.6 16.7 14.0 56.2
Tamil Nadu 9.5 6.1 17.1 67.2
Kerala 20.3 4.4 6.1 69.3

Source: Anderson and Ray (2012)

Figure 5.7 Missing women by age groups (1921) (per cent female in
the population)
Source: Fenske et al. (2022)

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 160 Region, Caste, and Gender: Continuity and Change

5.8 Conclusion
This chapter has discussed four different inequalities in India and how
they have changed or persisted over the long run. Regional inequalities
in GDP per capita show a certain persistence. GDP per capita growth
is negatively correlated with poverty–headcount ratio, although it is not
the only factor that can explain changes in poverty. Income inequal-
ity shows a double U-shaped pattern over the twentieth century with a
sharp decline in inequality under the Nehruvian policies of regulating the
private sector. The share of the top 0.1 per cent in income rose with eco-
nomic reforms from the 1980s but has not gone back to the high share
of the colonial period.
The third inequality is related to caste. The chapter discusses the
occupational segregation by caste in history and the slow change in caste
inequality in Indian society despite affirmative action from the 1950s.
The intervention has provided better access to education and jobs for the
lowest castes, although progress remains limited.
Finally, the chapter discusses gender inequality in India over the twen-
tieth century by focusing on the concept of ‘missing women’ and son
preference, which can explain the big rise in the ratio of male children
to female children. The skewed sex ratio in the age group 0–6 is specific
to the north and more recently in the western provinces in India. There
are a large number of missing women in the older age groups, showing
that son preference is not the only factor to explain gender inequality.
Intra-family allocation of resources reinforces unequal gender norms in
India today. The chapter explores the cultural factors that have been
suggested in the literature to explain the preference for sons and also
discusses evidence on missing women by age groups historically and in
recent times.

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 6 Colonial Development in a Comparative
Perspective

India emerged from colonial rule after the Second World War at the same
time as several other countries in Asia that had been ruled by Britain, the
Netherlands, and Japan. Had colonialization led to underdevelopment?
The picture was mixed. Malaysia and Singapore, both British colonies,
were more prosperous in 1950 than in 1910. Korea and Taiwan, col-
onies of Japan, were better off in 1950 compared to 1910. India and
Indonesia had stagnated (see Figure 6.1A). The difference in GDP per
capita among the Asian colonies was not that significant in 1950, but
over the next fifty years, big differences emerged in economic growth
and industrialization. South Korea, Taiwan, and Singapore overtook
the historically richer countries in Latin America (Figure 6.1B). The
Latin American countries had become independent from Spanish and
Portuguese Empires in the nineteenth century. The countries listed here
had prospered with globalization in the late nineteenth century. After
1929, the larger economies became more inward looking and moved
away from agriculture (Bértola and Ocampo 2012). The newly indepen-
dent economies in Asia adopted policies for economic development in
the second half of the twentieth century.
In the colonial period, the four economies of India, Indonesia, Korea,
and Taiwan had looked quite similar, but after 1950 their paths of devel-
opment diverged. South Korea and Taiwan were among the fastest
growing economies in the world (see Figures 6.2A and 6.2B).
In this chapter, I explore the differences in colonial policy in India,
Korea, and Taiwan that may have set them on different paths of growth
and development. There were differences in terms of size, geography,
population, and other initial conditions, but as colonies, all the countries
fulfilled an economic role with respect to the imperial country. They
started out as suppliers of raw material and a market for the industrial
goods produced in the imperial country. During the world wars, they
provided men for the battlefields and produced goods for the war effort.
However, the state of the economy of the colonies at the time of inde-
pendence was not the same. Acemoglu, Johnson, and Robinson (2001)

161

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 162 Colonial Development in a Comparative Perspective

6,000

5,000
COLONIES INDEPENDENT COUNTRIES
GDP per capita in 1990 GK $

4,000

3,000

2,000

1,000

0
India Indonesia S. Korea Taiwan Malaysia Argentina Brazil Chile Mexico

1910 1950

Figure 6.1A GDP per capita in the developing countries in Asia and
Latin America in 1990 International Geary-Khamis dollars (1910–1950)
Source: Maddison Data Project

18,000

16,000

14,000 ASIA LATIN

AMERICA
GDP per capita in 1990 GK $

12,000

10,000
1950
8,000 2000

6,000

4,000

2,000

0
India Indonesia S. Korea Taiwan Malaysia Argentina Brazil Chile Mexico

Figure 6.1B GDP per capita in the developing countries in Asia and
Latin America in 1990 International Geary-Khamis dollars (1910–2000)
Source: Maddison Data Project

distinguished between colonies where the Europeans settled and those

where settlement was low. In the former, the colonizers introduced insti-
tutions that were conducive to development. In the latter, the institutions

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 Colonial Development in a Comparative Perspective 163

1,600

1,400

1,200
GDP per capita in 1990 GK $

1,000

800

600

400

200

0
1910
1911
1912
1913
1914
1915
1916
1917
1918
1919
1920
1921
1922
1923
1924
1925
1926
1927
1928
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938
1939
1940
India Indonesia South Korea Taiwan

Figure 6.2A Change in GDP per capita in four colonial economies in

Asia in 1990 International Geary-Khamis dollars (the colonial period)
Source: The Maddison Project

25,000

20,000

15,000
1990 GK $

10,000

5,000

0
1950
1952
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010

India Indonesia South Korea Taiwan

Figure 6.2B Post-colonial divergence: India, Indonesia, South Korea,

and Taiwan in 1990 International Geary-Khamis dollars
Source: Maddison Data Project

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 164 Colonial Development in a Comparative Perspective

were extractive and impoverished the colony. Across the Asian colo-
nies there are large differences in terms of settlement by the coloniz-
ers. Nowhere was settlement as large as in the case of Australia and
New Zealand. Did proximity create a different context of colonization
for Korea and Taiwan, which led to the adoption of different policies?
Was Japan a different type of colonizer from Britain? This chapter will
provide an overview of the Japanese colonization of Korea and Taiwan,
the similarities and differences with British colonization of India, and
compare the structure of these economies at the time of independence
that laid the foundations for post-colonial development. In particular,
the chapter will focus on a comparison between South Korea and India
as these countries have been compared on many dimensions in the con-
text of the different paths to economic development after independence.
The historical determinants of economic development after indepen-
dence has received little attention in the literature. Instead the com-
parison between India and the East Asian countries has focused on the
differences in policies of industrialization after independence. This chap-
ter will focus on the differences in Japanese colonial policy in Korea and
Taiwan and British policy in India that might have determined the path
to be taken as the newly independent countries planned for develop-
ment. The chapter will start with a discussion of the history of coloniza-
tion of Korea and Taiwan. It will look at the industrial development in
the two countries in comparison with India. It will discuss the pattern
of agricultural development and offer a comparative perspective with
India. The chapter will look specifically at the policies towards education
and the growth of literacy in a comparative perspective. Finally, it will
discuss the differences in structural change in the three Asian economies.

6.1 Development of Industries in the Colonies

India, Korea, and Taiwan were primarily agricultural at the time of
­colonization. However, over the first half of the twentieth century there
was industrial development, and during the Second World War these
industries consolidated their position and there was diversification in
production. Korea, in particular, had become an industrial offshoot
of Japan, catering to the war effort and began to export manufactured
goods to Japan.
Indian industries too had consolidated their position during the First
World War. During the interwar years, Indian industrial interests were
growing in importance and demanded tariffs to protect their interests
in the home market, as discussed in Chapter 3. India was at the c­ entre
of the competition in the textile market between Britain and Japan

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 6.2 Economic Interdependence in the Colonies 165

after the First World War as Japan increasingly encroached into Britain’s
market share in India. The policy of Imperial Preference targeted
Japanese access to the Indian market. British multinational corporations
entered in new industries in the 1930s, which were supportive of tar-
iffs and shared common concerns with the import substituting Indian
industries.
I will argue in this chapter that industrialization proceeded at a sim-
ilar pace in India, Korea, and Taiwan. At the time of independence,
the three countries did not look as different in the share of industry in
GDP as they did thirty years later. However, in 1950 the three coun-
tries looked very different in agricultural development and investment
in human capital. The initial conditions of low land inequality and high
primary school enrolment in 1960 put South Korea and Taiwan on a
growth path (Rodrik 1995). The East Asian economies had a higher
level of literacy at the time of independence. The distribution of land was
modelled on Japan and more equal compared to India. These conditions
were missing in India.

6.2 Economic Interdependence in the Colonies

6.2.1 Korea
Unlike India, Korea was isolated from the rest of the world until 1876.
Traditional agriculture was practised widely, artisanal production
catered to the village economy, and internal and external trade was lim-
ited (Chung 2006, chap. 2). When the economy began to open up to
outside influence after 1876 under a treaty with Japan, Japan became
the main trading partner selling modern industrial goods, such as cotton
textiles, and importing rice. Korea became a protectorate of Japan in
1905 and formally a colony in 1910. Before colonization, 50 per cent of
Japanese exports to Korea was cotton textiles. British textiles had a large
share of the market. After the conquest of Korea, British cotton tex-
tiles were replaced almost entirely by exports from Japan (Duus 1984).
The colonization process involved building an infrastructure for trade.
Investment in ports, railways, and banking integrated the Korean econ-
omy into the Japanese economic system (Chung 2006, chap. 3). Rice
was at the heart of the policy of colonization. Korean rice, though more
expensive than rice from South East Asia, was preferred in Japan and
imports from Korea were large when harvests failed (Duus 1984).
As a colonizer, Japan sought to tie Korea in this international division
of labour producing agricultural goods. At the same time Korea was seen
as a useful location for Japanese industrial investment. This coincided

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 166 Colonial Development in a Comparative Perspective

with Japan’s military ambition in East Asia. Suh (1978) divides the colo-
nial period into three parts: 1910–1919, when agricultural development
was prioritized; 1920–1929, when foundations of new industries were
laid; and 1939 onwards, when Korea became a part of Japan’s war effort.
In the first period, as with the British administration’s efforts to define
property rights in land in India, Japan began colonization of Korea with
a nationwide cadastral survey and created a land tenure system that gave
ownership rights and tax liabilities to cultivators. This marked the first
difference between India and Korea in terms of land concentration. The
Japanese state regulated Japanese investment in industry in Korea to cre-
ate complementarity in specialization by sector (Suh 1978, pp. 2–3).
In the second period, there was an effort to increase rice yields as this
was Korea’s main export to Japan. Production of other agricultural raw
materials, such as raw cotton and silk, were also developed. There was a
large increase in yields in agriculture as a result of the use of commercial
fertilizers and improved seeds. Output more than doubled between 1915
and 1940 (Chung 2006, chap. 4). During this time, Japanese invest-
ment in industrial firms was permitted and Japanese-owned firms were
set up in new industries. In the third period, Japan began to invest in
war-related industries, which processed metals and produced chemicals.
Japan’s involvement in the war made northern Korea an attractive loca-
tion to build industrial and mining capacity (Boestel et al. 1999, p. 188).
Processed food had been the largest sector in manufacturing. It pro-
duced 32 per cent of output and the chemical industry accounted for 17
per cent in 1931. By 1940 the respective shares were 20 per cent and 36
per cent. The overall share of light industry producing consumer goods
in 1931 was 67 per cent, but declined to 50 per cent. By 1940 indus-
tries producing intermediate goods produced half of the manufacturing
output (Suh 1978, table 4). After the end of the colonial rule and the
Korean war that followed, Korea was divided into two countries. The
independent state of South Korea was largely dependent on agriculture
that employed three-quarters of the labour force. The more industrial
region in the north was in a different country.

6.2.2 Taiwan
Taiwan was a trading post of the Dutch East India Company in the sev-
enteenth century. When Taiwan came under Chinese rule in 1685, its
economic significance as a trading port declined. In 1895, the country
came under Japanese rule. It was an agricultural economy, producing
rice, tea, and sugarcane. There had been some migration from China,
but the economy comprised of isolated rural communities and there was

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 6.3 Industrialisation in a Comparative Perspective 167

little trade (Cha 2002). The Japanese integrated the internal market and
established infrastructure for external trade by building railways, unify-
ing the currency, and setting up the Bank of Taiwan. As in the case of
Korea, the Japanese government conducted a cadastral survey to confer
property rights to unregistered land and this generated a large increase
in land revenue (Ho 1975). Taiwan was important as a source of agri-
cultural production, in particular rice and tea, and the Japanese govern-
ment invested to increase productivity in the cultivation of these crops
(Cha 2002).
In the initial phase of colonial rule, agricultural growth was 2–2.5 per
cent. After 1920, it increased to 3.8 per cent and labour productivity in
agriculture was 88 per cent higher in 1935 compared to 1910 (Ho 1975).
Taiwan supplied agricultural products to the Japanese market and the
main industry that developed was sugar. Metal working and chemical
industries developed during the war, but were not as important as in
Korea (Ho 1975).

6.3 Industrial Development in a Comparative Perspective

Did the Japanese view industrial development in East Asia differently?
In Chapter 3, I argued that, until the First World War, there was little
interest on the part of the colonial government or British business to
develop industries that were not producing goods for export. In the nine-
teenth century, Britain saw India as a market for industrial goods. Even
if Empire trade was not that large in Britain’s total trade (O’Brien 1982),
the colonial market was of significant importance in specific industries,
in particular cotton textiles. The cotton textiles industry in Britain sold
60 per cent of its output in foreign markets (Clark et al. 2014), and 60
per cent of demand for cotton textiles in India was met by import from
Britain in 1880.
Lancashire lobbied all through the nineteenth century to stop the
growth of an import substituting industry in India and competition in the
Indian markets. The attitude of the colonial government towards Indian
industrialization changed during the First World War, when industrial
capability in the colony assumed importance. British administrators
became more open to tariffs for import substituting industries. However,
Britain did not see India as a place to relocate industries, despite lower
wage costs and strategic reasons. The exception was jute. The two indus-
tries that attracted British investment were tea and jute – both processed
agricultural products that were cultivated in India. Both industries sold
in the export market. A jute industry in India was closer to the source of

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 168 Colonial Development in a Comparative Perspective

raw materials and faced lower labour costs.1 British investment in Indian
industry was confined mainly to export sectors until the 1930s, when for-
eign direct investment was channelled through multinational companies
in a few import substituting industries.
In Korea, Japanese investment in industry was a significant compo-
nent of industrial investment. Large Japanese investments were made
in companies incorporated in Korea, apart from direct investment by
Japanese companies that opened subsidiaries (Chung 2006, chap. 4). In
1943, over 78 per cent of private investment and 22 per cent of public
investment came from Japan. Over 83 per cent of private investment was
in firms incorporated in Korea (see Table 4.2). In India, the largest share
of British investment was in companies incorporated in Britain, such as
tea and the railways. Chung (2006) estimated the share of total invest-
ment in GDP at over 10 per cent, a significant increase from less than
0.5 per cent of GDP in 1910, and argued that the Japanese contribution
to the rising investment was substantial.
Korean investment in incorporated companies was small to begin with
and increased over time. Most of the Korean investment in industry
was in smaller unincorporated companies. Chung claims the technol-
ogy used in Korean-owned firms mostly lagged behind the technology in
Japanese-owned firms. The Japanese firms were more capital intensive.
Chung points out that the modern technology of Japanese firms had
spillover effects on local firms. Kim and Park (2008) question the view
that all of the productivity growth in industry between 1910 and 1940
was in the Japanese-owned firms and occurred from 1930. They show
that labour productivity in Korean firms began to rise early in the colo-
nial period. Table 6.1 shows the share of Japanese investment by sector
and the contribution of Japanese human capital in industrial develop-
ment by sector.
The share of mining and manufacturing in GDP at 4–5 per cent was
smaller than in India in 1910, but by 1940 it had increased to 26 per
cent. As Table 6.1 shows, Japanese investment dominated the Korean
manufacturing industry, both in terms of authorized capital and techni-
cal personnel. Except in machinery, Japanese investment was dominant
in all sectors. In the share of technical personnel, the Japanese techni-
cians had a sizeable presence, but in metal and chemical industries their
presence was dominant. Both these industries were important in the war
effort. The Japanese residents in Korea were mainly engaged in urban

1
Dundee in Scotland had been the centre of the jute industry. It imported raw jute from
India. Once jute firms were set up in Calcutta with British capital, its locational advan-
tage made Calcutta the centre of jute manufacturing.

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 6.3 Industrialisation in a Comparative Perspective 169

Table 6.1 Share of Japanese investment and human capital in Korea

(1940) (%)

Share of Japanese Share of Japanese

technical personnel authorised capital Total in million Yen

Printing 76 57.1 3.5

Metal 89 98.4 379.1
Machinery 75 58 146.6
Chemical 89 99.6 277.3
Gas and electrical 81* 100 553.0
appliances
Ceramics 52 100 53.2
Textiles 73 84.5 90.6
Wood products 68 89.5 52.5
Processed food 64 92.3 79.1
Total 81 94.1 1725.4

Note: * includes gas, electricity, and water supply

Source: Suh (1978, table 8 and 9)

activities. Over 70 per cent of the Korean population were in agriculture

in 1940, but the Japanese expatriates, who made up 3 per cent of the
population, were engaged in government, manufacturing, transport, and
communication (Suh 1978, p. 19).
In Taiwan, Japanese immigration brought in the technical and com-
mercial skills needed in industry and services. The share of Japanese
immigrants was around 5 per cent but they were overrepresented in
skilled jobs. 30 per cent of the clerical workers, 45 per cent of profes-
sional workers, and over 70 per cent of the government employees and
technicians were Japanese (Ho 1975). Japanese involvement played a
role in the development of the agricultural technology.
Indian investment was large in cotton textiles, iron steel, and several
other import substituting industries, such as sugar and food processing
(Chapter 3). There is less systematic evidence on the presence of British
technicians in the industrial sectors in India. Entrepreneurs from Indian
trading communities were dominant in the cotton mills in Bombay in
early twentieth century. However, there was an overwhelming presence
of the British and the highly educated Parsis among the technical per-
sonnel (see Table 6.2).
In colonial India and in colonial Korea and Taiwan, the modern
manufacturing industry was the fastest growing sector starting from a
low base. Table 6.3 shows the composition of the manufacturing indus-
try and growth across sectors in manufacturing in Korea and Taiwan.

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 170 Colonial Development in a Comparative Perspective

Table 6.2 Skilled personnel in Bombay cotton textile industry

Directors Mill managers Skilled workers Engineers

1925 1895 1925 1895 1925 1895 1925

European 24 27 28 54 78 23 15
Parsi 49 20 32 71 113 32 77
Hindu 77 4 11 36 32 4 23
Muslim 19 2 5 1 1 1 2
Baghdadi Jew 6 2 8 2 1 2

Source: Rutnagur (1927, pp. 297–311, p. 249)

Table 6.3 Growth and composition of manufacturing industries (%)

Share of manufacturing output

Korea Taiwan
Growth
1914– 1936– Growth 1914– 1936– 1913–
1916 1940 1913–1939 1916 1940 1939

Food 35 27 7.27 70 73 6.06

Textiles 13 18 7.96 1 2 6.64
Chemicals 12 30 12.5 20 11 3.21
Non-metallic minerals 3 3 12.95 1 2 8.49
Metals 16 11 6.85 2 5 10.82
Machinery 2 3 8.47 1 2 13.03
All manufacturing 8.12 5.94

Source: Suh (1978, tables 2 and 3)

Food industries had a dominant share of industrial output in both coun-

tries, particularly in Taiwan. Metal and chemical industries had a size-
able share of industrial output in Korea. In Taiwan, these industries
were less important.
Geography may have played its part in the nature of colonial involve-
ment in industry. Nakajima and Okazaki (2018) looked at the effect of
proximity of the colonies on Japan. Colonial interdependence led to
increased economic activity in the regions close to Korea. Proximity
might have allowed easy relocation of resources to Korea in response to
lower wages or the introduction of industrial regulation in Japan and led
to industrial development in the colonies. Involvement of Japanese entre-
preneurs and skilled workers in industry in Korea and Taiwan was wide-
spread. Thousands of Japanese workers settled and worked in Korea. In

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 6.4 Commodity Trade 171

the 1930s, the share of foreign population in Korea and Taiwan were
between 3–5 per cent of the population (Booth 2007, p. 20). The share
of the British expatriates in India was well below 1 per cent.

6.4 Commodity Trade

During the colonial period, Korea’s trade increased faster than GDP.
The share of exports to Japan increased from 74 per cent to 92 per
cent and imports from Japan increased from 62 per cent to 88 per cent
between 1910 and 1940. Manufactured goods were the main compo-
nent in these imports and exports were mainly food and raw materials
until 1925. By 1940 manufactured goods had a sizeable share of exports
(see Table 6.4A).
Taiwan’s exports to Japan, on the other hand, comprised mainly of
agricultural products (see Table 6.4B), and the share of agricultural
exports, mainly rice and sugar, increased over time. Processed sugar was
almost half of all agricultural exports and Japanese companies invested
in sugar. The first large sugar refinery was set up with Japanese capital
(Ho 1975).

Table 6.4A Composition of exports from Korea to Japan

1915 1925 1940

Unprocessed food 18.4 64.9 27.5

Processed food 0.5 2.2 4.3
Raw materials 9.9 10.1 20.8
Semi manufactures 10.9 12.1 29.6
Finished manufactured 60.3* 10.7 17.7

* Finished manufactured were mainly artisanal products

Source: Suh (2020, table 6)

Table 6.4B Composition of exports from Taiwan to Japan

1910–1919 1920–1929 1930–1939

Unprocessed food 77.3 82.9 84.5

Processed food – 0.1 0.1
Raw materials 9.5 8.4 7.6
Manufactured goods 13.0 8.5 7.5

Source: Ho (1975, table 3)

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 172 Colonial Development in a Comparative Perspective

The share of trade in GDP had similarly increased in colonial India,

although Britain was less reliant on India for imports and exports. Britain’s
share of exports from India in 1865 was 69 per cent and declined to 23
per cent by 1914. Britain’s share in imports declined from 84 per cent
in 1865 to 61 per cent in 1914. (Statistical abstracts for British India for
respective years) Britain’s share increased again in the 1930s with Imperial
Preference in trade within the Empire (Arthi et al. 2024). Manufactured
goods were not important in Indian exports unless they were non-
competing imports. In 1811, 33 per cent of India’s exports had been
handloom-produced cotton textiles, but in 1935 the figure was less than
2 per cent. The main manufactured export from India was jute products
with a share of 15 per cent in 1935. Exports of raw cotton and jute, tea,
and food grains were close to 60 per cent (see Table 2.3 in Chapter 2).
India and Korea had a different trading relationship with the respective
imperial countries. British industries did not view India as a place to relo-
cate their production facilities. India was either a source of non-competing
manufactured goods or a place to set import substituting industries for the
domestic market, when tariffs were introduced in the 1930s.

6.5 Agricultural Development in a Comparative

Perspective
In another important aspect, British policy in India differed significantly
from Japan’s policy in East Asia. This was with respect to agricultural
development. Japan relied on imports from the colonies for an essen-
tial food grain and therefore increasing yield in rice cultivation was seen
as imperative. By the early twentieth century, Japan had a large non-
agricultural sector and self-sufficiency in food was given up for importing
food. Yield per acre in rice in Japan was stagnating and Japan used colo-
nization as a means of acquiring new land that could supply agricultural
products to Japan, in particular rice (Ho 1975). Large tracts of land were
brought under rice cultivation in Korea and Taiwan. Japan invested to
improve land productivity in rice cultivation in the colonies. The first
step was to introduce the Japanese varieties of rice that had higher yield.
These varieties required intensive use of water and fertilizer and build-
ing an irrigation infrastructure was a priority for the policymakers. In
1950, about 60 per cent of cultivated land was under rice. Korea and
Taiwan followed the Japanese path of increasing agricultural productiv-
ity through greater use of labour input and fertilizer rather than mecha-
nization (Hayami and Ruttan 1971).
East Asia looked very similar to Japan in terms of the use of land
for rice cultivation as well as in land ownership. Even before the land

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 6.5 Agricultural Development in a Comparative Perspective 173

reforms of the 1950s, the land owning gentry did not own large tracts of
land. Much of the land belonging to non-cultivating landlords had been
redistributed to cultivating owners (Ho 1975). The land reforms of the
1950s improved land distribution even more (Boestel et al. 2013, p. 77).
Introduction of better seeds and double cropping raised agricultural
productivity. Table 6.5A shows the changes in fertilizer use and expan-
sion in double cropping of land. Both contributed to agricultural growth
and both depended on the availability of irrigation. As the table shows, by
1925, 59 per cent of the land was irrigated in Korea and 70 per cent in
Taiwan. This increased further over the next decade. In Taiwan, adoption
of new technology was rapid. By the 1920s, there had been a substantial
investment in irrigation, which created the conditions for adoption of high
yielding varieties in rice and sugarcane (Ho 1975). The Japanese intro-
duced two institutional changes: the reform of the land tax and develop-
ment of agricultural associations. The cadastral survey had increased the
number of landowners with legal ownership and improved inheritance
rights and the sale of land. The land tax reform created incentives for
landowners to improve land productivity (Myers and Ching 1964).
Ho (1975) argues that in Taiwan, the colonial government ­provided two
unconventional inputs: agricultural science and ­modern ­institutions that
paved the way for agricultural development. The ­agricultural ­associations
created links between landowners, cultivators and ­agricultural experimen-
tal stations and the number of such associations increased rapidly. This
improved information flow and dissemination of new technology, and
adoption of new types of seeds (Myers and Ching 1964). Farmers organi-
zations assisted in dissemination and adoption of new technology and the
cooperatives assisted by providing access to credit and distribution of fer-
tilizers. Neither of these inputs were widely available in the cultivation of
food crops in India. Agricultural research centres existed but focused on
improving yields in raw cotton and other cash crops.
Kang and Ramachandran (1999) show that in Korea irrigation
expanded at 18 per cent a year and use of chemical fertilizer increased at
22 per cent per year. The total investment in irrigation and roadbuilding
in the rural areas was 30–45 per cent of total revenue during this period.
In order to improve agricultural yields, Japan as a colonizer differed
from the British in India.2 While yield per acre in rice cultivation in
the Japanese colonies improved, in India yield per acre in food grains
stagnated, particularly in rice cultivation. Table 6.5A shows that indi-
cators of improvements in agriculture in Korea and Taiwan, the share

2
This is not to suggest that Japan was a benevolent colonizer, but rather it suited Japan’s
imperial interest to invest in agriculture.

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 174 Colonial Development in a Comparative Perspective

Table 6.5A Changes in agricultural production in Korea and Taiwan

Korea Taiwan

Share of cultivated land (%) Share of cultivated land (%)

Fertilizer Fertilizer
Irrigated Double per Irrigated Double per
area cropping hectare area cropping hectare

1920 16 1.3 57 67 12
1925 49 17 3.4 70 71 20
1930 59 22 12 88 74 33
1935 69 26 28 78 65 55

Source: Myers and Saburo (1984, tables 2 and 3)

Table 6.5B Changes in agricultural production in Korea and Taiwan

Percentage Percentage Rice

Crop Crop Labour Fertilizer irrigated of paddy yield
output acreage input input are under land using kg/
Period (index) (index) (index) (index) paddy HYV hectare

Korea
1915–1919 100 100 100 100 NA 39 1,384
1920–1924 110 107 101 168 17 64 1,407
1925–1929 114 112 106 457 22 73 1,553
1930–1934 129 116 100 736 26 77 1,823
1935–1939 145 118 97 1129 28 85 2,084
Taiwan
1910–1914 85 92 98 59 33 NA 1,330
1915–1919 100 100 100 100 37 NA 1,413
1920–1924 108 103 97 123 42 2 1,468
1925–1929 139 112 100 167 48 18 1,642
1930–1934 170 121 102 218 55 29 1,808
1935–1939 202 130 111 315 59 46 2,052

Source: Ho (1975, table 2). Sugar yields in Taiwan increased from 25.390 in 1901–1914
to 70,332 in 1935–1939

of irrigated land, the share of double cropped land, and the per hectare
use of fertilizer increased between 1920 and 1935. Table 6.5B confirms
these patterns for acreage under rice and shows that increase in produc-
tivity rather than increase in acreage account for the increase in agri-
cultural production. This is a contrast with the developments in Indian
agriculture under colonial policies. As I have shown in Chapter 2, the
last fifty years of British rule was characterized by agricultural stagnation.

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 6.6 Investment in Education 175

Investment in irrigation in India was a contrast to the colonial pol-

icy in East Asia. Irrigation covered less than 20 per cent of land under
cultivation in 1935, compared to 69 per cent in Korea and 78 per cent
in Taiwan. Irrigation received only a small part of total spending from
revenues and was a small part of capital expenditure (see discussion in
Chapter 2). India’s agricultural stagnation was a failure of colonial policy
to invest in the largest sector of the economy. Increases in yield per acre
occurred in irrigated areas of the canal colonies in Punjab and Sind and
favourably affected wheat and cotton yields. This was not the case for
most rice growing regions and consequently Indian rice yields remained
well below the levels in East Asia.
The difference between the two regions in the colonial interdepen-
dence was that Japan supplemented food availability through imports,
whereas Britain’s trade in agricultural products from India involved
opium, tea, and cotton. Tea was a mass consumption good in Britain,
but was consumed in small quantities. Opium was traded to buy tea
from China and declined in importance as India replaced China as the
tea producer. During the American Civil War, India became the main
supplier of raw cotton to British industries, but lost market share once
the war ended. India as a colony was not as important in British trade
and not important at all as a supplier of essential food grains. The dif-
ference in geographic proximity and the consequent differences in the
economic relationship appears to explain the differences in the policies
of Britain and Japan as colonizers in Asia.

6.6 Investment in Education

Japan as a colonizer viewed education in the colonies very differently
from the British in India. As discussed in Chapter 4, British policy
towards education focused on creating an English-speaking elite, who
could run the administrative services. At a time when Britain moved
towards ­universal primary schooling, in India education spending did
not prioritise primary education and a disproportionate share of the
budget was spent on secondary education. For those who had access to
primary education, the enrolment in secondary and tertiary education
was high, even in comparison to several European countries as well as
Japan (see Chapter 4). Japan adopted a different policy in the colonies
where primary education was still low and prioritized expanding primary
education.
Go and Park (2019) discuss the availability of schooling in Korea
and Taiwan before colonization. They argue that private education was

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 176 Colonial Development in a Comparative Perspective

more common in Korea than in Taiwan. These were mainly traditional

schools run privately and westernized education offered by missionaries.
On the eve of colonization, enrolment in private schools in Korea was
7 per cent and mainly among boys. The enrolment in private schools
in Taiwan was 3 per cent in 1895. The education policy of the colo-
nial government was to segregate it by ethnicity. Children of Japanese
immigrants had more favourable access to education and typically could
avail of primary, secondary, and tertiary education. However, ‘common’
public schools were open to the local population and this was limited to
primary education (Go and Park 2019).
Enrolment of children aged 5 to 14 in ‘common’ public schools in
Korea and Taiwan increased during colonial rule. Taking into account
private and public schools, Kimura (1993) estimates that primary school
enrolment rate for boys went up to 70 per cent in 1940 in colonial
Korea and that access to education for boys was not confined to the
elites and middle classes. Girls, however, rarely received any form of
education. More recent evidence comes from Go and Park (2019), who
consider public school enrolment. In 1943, nearly 50 per cent of school
age children from all social classes in Taiwan were enrolled in schools
compared to just under 30 per cent in Korea (Go and Park 2019).
Figure 6.3A shows the differences in enrolment in the two countries.
Figure 6.3B shows the large difference in the enrolment rate between
boys and girls, particularly in Korea. Go and Park (2019) discuss the
reasons for the differences in expansion of schooling in the two coun-
tries. One reason for the slower growth in Korea could have been the
availability of private education on a larger scale and its expansion dur-
ing the initial years of the colonial period. The share of private schools
increased until 1920 and then declined. By the 1930s, only 5 per cent of
the school age children were in private schools.
There were also differences in the funding of schools. Both countries
charged fees and relied on local support, but schools in Taiwan charged
lower fees and had more financial support from provincial governments.
The Japanese colonies made a bigger push to public education in the
initial phase of colonialization. The greater scope of public education
in Taiwan appears to have accounted for faster growth in primary edu-
cation. In 1960, literacy rates in both countries were well above what
would have been predicted on the basis of their per capita incomes
(Rodrik 1995).
The Japanese colonies in East Asia looked far superior in their pri-
mary school expansion in comparison to India under British rule.
The enrolment rate in colonial India was one of the lowest in the
world (see Chapter 4). The reliance on private funding for schools

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 6.6 Investment in Education 177

0.6000

0.5000

0.4000
Enrollment rate

0.3000

0.2000

0.1000

0.0000
1905
1906
1907
1908
1909
1910
1911
1912
1913
1914
1915
1916
1917
1918
1919
1920
1921
1922
1923
1924
1925
1926
1927
1928
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938
1939
1940
1941
1942
1943
1944
Taiwan Korea

Figure 6.3A Public school enrolment in Korea and Taiwan

0.7000

0.6000

0.5000
Enrollment rate

0.4000

0.3000

0.2000

0.1000

0.0000
1905
1906
1907
1908
1909
1910
1911
1912
1913
1914
1915
1916
1917
1918
1919
1920
1921
1922
1923
1924
1925
1926
1927
1928
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938
1939
1940
1941
1942
1943
1944

Taiwan – male Taiwan – female Korea – male Korea – female

Figure 6.3B Gender gap in school enrolment in Korea and Taiwan

Source: Go and Park 20193

3
I thank Sun Go for sharing the data from his paper.

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 178 Colonial Development in a Comparative Perspective

increased the influence of the elites, who were in local bodies and did
not prioritise spending on primary education. In Indonesia, a Dutch
colony, the priority was primary education. The enrolment rate in pri-
mary school was 22 per cent in 1940 (Booth 1998, p. 275), which was
low in comparison to East Asia but higher than in British India at just
over 15 per cent. The increase in the provision of secondary education
in Indonesia began after 1970 (Van der Eng 2010). In 1950, India
spent 58 per cent of the education budget on secondary and tertiary
education. In Indonesia, the figure was 28 per cent (see Table 4.6 in
Chapter 4).

6.7 Colonial Origins of Economic Development after 1950

Korea was divided into north and south along the 38th parallel in
1945 under the supervision of the Soviet Union and the USA. The
Korean war that followed in 1950–1953 solidified the division of the
two countries into two different economic systems. The north came
under a communist system and South Korea’s capitalist economy saw
one of the fastest growths in the world. In colonial Korea, the north
had been more industrial and more developed. Per capita GDP in
the north and the south were roughly the same in 1910. In 1940,
South Korea’s GDP per capita was 70 per cent of that of North Korea
(Kim 2021). Under the new policies in independent South Korea, the
spectacular growth of the next four decades transformed the country
from one of the low income countries to one of the richest emerging
economies.
This impressive performance occurred under state-directed industrial-
ization, which provided incentives to the private sector to invest in indus-
tries that were prioritized for development. The initial policies supported
import substitution in industries by introducing multiple exchange rates
and tariffs that allowed easier access to import of capital goods and raw
materials, but made import of consumer goods more expensive. Unlike
India’s efforts to develop a domestic capital goods sector, South Korea
relied on imports and started to develop industries, where the economy
could gain a competitive advantage in the export market. The move from
import substitution to export promotion began early in the 1960s, when
the government unified the exchange rate and provided for export sub-
sidy and easy access to import and credit to industrial sectors that were
prioritized. In the early phase, the industries that developed were mainly
consumer goods. From 1973 six capital intensive intermediate and cap-
ital goods industries, such as steel, non-ferrous metal, machinery, ship-
building, electronic, and chemical industries, became the priority sectors

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 6.7 Colonial Origins of Economic Development 179

Table 6.6 Sectoral distribution of GDP and employment in South Korea

and Taiwan after 1950 (%)

South Korea

GDP Employment

Years Agriculture Industry Services Agriculture Industry Services

1955 39.3 9.7 51.0

1960 38.0 12.0 50.0 79.5 5.4 15.1
1970 31.1 20.4 48.5 50.5 14.3 35.2
1980 17.8 25.3 56.9 34.0 22.6 43.4
1990 9.1 29.7 61.2 18.3 27.3 54.4

Taiwan

GDP Employment

Agriculture Industry Services Agriculture Industry Services

1952 32.2 19.7 48.1 56.1 16.9 27.0

1961 27.4 26.8 46.0 49.8 20.9 29.3
1970 15.5 36.8 47.7 36.7 27.9 35.4
1980 7.7 45.8 46.6 19.5 42.5 38.0
1990 4.2 41.2 54.6 12.9 40.8 46.3

Source: Boestel et al. (1999, p. 77)

for development (Kim 2021). Export subsidies were given to support

these industries to became competitive in the world market. The condi-
tion was that within a certain time a specified share of output would be
exported.
Table 6.6 shows the success of the industrialization policy as the
share of industry increased sharply in GDP and employment. Table 6.7
shows the high share of gross fixed capital formation in GDP in Korea
relative to India and the increase in the share of manufacturing in gross
fixed capital formation across the three countries. While India pushed
up the investment rate in manufacturing in the 1950s under the second
five year plan, South Korea raised the investment rate in the 1970s. The
increase in the investment in industry was sustained in East Asia but
declined in India.
Table 6.8 shows yet another difference between India and East Asia
in terms of the rates of growth in exports. In the colonial period and
even in the 1950s, India and South Korea did not look very different in
the share of exports in GDP. Their paths diverged after 1960 as South

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 180 Colonial Development in a Comparative Perspective

Table 6.7 Gross fixed capital formation and the share of manufacturing (%)

Share of manufacturing in gross

fixed capital formation (%)
Share of fixed capital formation in
GDP 1973–1997 (%)* 1950 1960 1970 1980 1990

India 20 11.6 27.8 27.5 12.5 10.4

South Korea 31 13 15 17 28.3 32.3
Taiwan 24 19.5 23.5 36.1 29.0 25.7

Source: Amsden (2001, table 6.3, p. 131*)

Table 6.8 Growth of exports (1950–1990) (%)

1950–1960 1960–1970 1970–1980 1980–1990 1990–1995

India 0.4 3.7 17.3 7 11.7

South Korea 1.3 39.8 37.2 15.0 26.3
Taiwan 6.5 23.2 28.6 14.8 20.3

Source: Amsden (2001, table 7.1, p. 162)

Korea embraced an export-led strategy, while India was to remain

committed to policies of import substitution. The share of manufac-
tured goods in exports rose from 5 per cent in 1960 to 35 per cent
by the early 1970s (Yoo 2017). The failure to make a transition to a
more open economy after the initial phase of an inward looking devel-
opment strategy was a factor in the slowdown in industrial growth in
India. Rodrik (1995) and Young (1995) attribute Korea’s success to
the high rate of capital accumulation. India’s investment rate was low
in comparison.
Kohli (1994) raised an important question: How can we think of the
political economy of high growth countries? He explored Korea’s colo-
nial history to understand how it might have impacted on the post-war
growth experience. Kohli argues that the origins of the Korean eco-
nomic miracle lies in the Japanese lineage. Japan experienced modern
economic growth after the Meiji restoration of 1868. Japanese devel-
opmental policies were applied to the context of the colonies. Similar
interventions were made in modernizing agriculture, industry, and
infrastructure.
Kohli (2004) argues that Korea was perhaps the only example
where the colony exported manufactured goods to the imperial power

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 6.8 Structural Change 181

by the 1930s. As pointed out earlier in this chapter, the geographical

proximity may have been a factor that allowed the adoption of sim-
ilar practices in the colonies. The proximity may have assisted the
development of complementary industries in the colony and gener-
ated skills and technological knowledge that could be used effectively
in independent South Korea. The education system made access
to primary school widespread and produced a literate workers for
industries.
Booth (1999) suggests that the Japanese colonies in East Asia evolved
differently to the European colonies in South-East Asia. The high lit-
eracy of Korea and Taiwan was an outcome of Japanese policy to raise
human capital of the workforce. The independent governments build
on this legacy. An equal distribution of income and wealth has been
highlighted as a favourable initial condition in East Asia (Rodrik 1995).
Here too the Japanese intervention in the land tenure systems in Korea
and Taiwan created more equal distribution of land ownership than
what had emerged in the landlord system under British colonial policy
in India.

6.8 Structural Change

Figures 6.4A, 6.4B and 6.4C show the pattern of structural change in
India, South Korea, and Taiwan over the twentieth century. The sectors
are classified as primary, secondary, and tertiary, to use comparable data,
broadly capturing agriculture, industry, and services.4 All three countries
started with a high share of agriculture and other primary sector activities
in GDP at over 60 per cent. The share of the secondary sector in GDP
was similar in India and South Korea in 1950, but in South Korea the
primary sector contributed less to output and the share of the service sec-
tor was larger. From 1950 the decline in the share of the primary sector
accelerated and the share of industry and mining increased. In 2000, the
primary and secondary sectors had the same share in GDP in India. In
South Korea, the share of the primary sector had declined to 4 per cent
and the secondary sector produced one-third of GDP. The share of the
secondary sector was larger in Taiwan compared to India and Korea in
1950 and increased to over half the national output by 1980. The share
of the primary sector declined dramatically. In 2000, the two East Asian
countries looked remarkably similar. However, in India, the second-
ary sector remained much smaller and the pattern of structural change

4
Primary sector includes, agriculture, finishing, and forestry. Secondary sector includes,
mining, manufacturing, and construction. Tertiary sector includes all services.

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 182 Colonial Development in a Comparative Perspective

70
66

60
60
56

51
50
46
Share of GDP

40
37
35

30 30 30
30

23 23 23

20 19
14
12
11 10
10

0
1900–01 1920–21 1930–31 1950–51 1980–81 1999–00

Primary Secondary Tertiary

Figure 6.4A Structural change in India (1900–2000)

Source: Sivasubramonian, 2000. Appendix tables 7(f) and 9 (d)

80

70 67

59
60
52
50 Primary
45 46
Share of GDP

43
41 Secondary
40 39
35 34 Tertiary
31
30
24

20
14
11
10 9
6
3 4

0
1910 1920 1930 1950 1980 2000

Figure 6.4B Structural change in Korea (1910–2000)

Source: Long run Historical Statistics in Korea and Taiwan.
(Hitotsubashi University)

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 6.8 Structural Change 183

70

63

60

51
50
44
40 40
39 39
Share of GDP

40 39 39
36 35
33

30
25
23 22 21
20

10 9

2
0
1910 1920 1930 1950 1980 2000

Primary Secondary Tertiary

Figure 6.4C Structural change in Taiwan (1910–2000)

Source: Long run Historical Statistics in Korea and Taiwan.
(Hitotsubashi University)5

showed the growing importance of the tertiary sector. The relatively high
share of agriculture in India is yet another difference.
The figures show the relative weakness of the secondary sector in
India after 1950. This was particularly true in manufacturing. Unlike
India, East Asia followed an infant industry policy of protecting domes-
tic industry only in the ‘learning’ phase (Perkins and Tang 2017) and
moved early towards export-promoting policies in the manufacturing
industry.
India’s post-independence growth performance is seen as a failure in
comparison to the East Asian successes. Growth in output per worker
in South Korea and Taiwan was just below 6 per cent per year between
1960 and 1994, more than double of the average for South Asia at
2.3 per cent per year (Collins et al. 1996). Growth in physical cap-
ital per worker was around 3 per cent per year compared to South
Asia’s 1 per cent per year and growth in human capital per worker was
over 0.06 per cent per year compared to South Asia’s 0.03 per cent
per year (Collins et al. 1996). Collins et al. (1996) argue that external
conditions explain very little of the growth difference between South

5
I thank Kyoji Fukao for making the data available.

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 184 Colonial Development in a Comparative Perspective

and East Asia. Education is a more important explanatory variable. In

South Korea and Taiwan, the average years of education of the work-
force rose from 3.2 in 1960 to over 8 in 1994. In India, the change was
from 1.3 to 3.4. Public expenditure on education in South Korea was
twice as high as in India in 1970. The long-run consequences of colo-
nial policy may have contributed to the different paths of development
followed in South and East Asia.
Figures 6.5A, 6.5B and 6.5C shows the differences in sectoral pro-
ductivity in the three countries under colonial rule. India started out
with an advantage in the service sector. In 2000, output per worker in
the tertiary sector was higher in India. In East Asia, although the tertiary
sector started out with higher productivity, output per worker in the sec-
ondary sector rose faster and this sector became the most productive
sector in the economy in 1940. Figures 6.5B and 6.5C show the colo-
nial origins of an advantage in industrial activities in Korea and Taiwan.
Indian advantage in services is shown in Figure 6.5A. I have argued in
this chapter that the policies of extending primary education provided
an advantage to industry in Korea and Taiwan. The emphasis on higher
education for some groups and the concentration of human capital in
services in India discussed in Chapter 4 provided an advantage to this
sector relative to industry.

1,600

1,400

1,200
GDP per worker in Million Rs.

1,000 GDP

Primary
800
Secondary

600 Tertiary

400

200

0
1901-05 1921-25 1931-35 1941-45

Figure 6.5A GDP per worker in colonial India in million Rupees in

1948–49 prices (1905–1945)
Source: Author’s calculations from Sivasubramonian (2000)

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 6.8 Structural Change 185

700

600
GDP per worker in 1,000 Yen

500

GDP
400
Primary

Secondary
300
Tertiary

200

100

0
1920 1930 1940

Figure 6.5B GDP per worker in colonial Korea in 1,000 Yen in 1935
prices
Source: Long run Historical Statistics in Korea and Taiwan.
(Hitotsubashi University)*

35

30
GDP per worker in 1,000 Yen

25

GDP
20
Primary

Secondary
15
Tertiary

10

0
1905 1915 1920 1930 1940

Figure 6.5C GDP per worker in colonial Taiwan in 1,000 Yen in 1935
(1905–1940)
Source: Long run Historical Statistics in Korea and Taiwan.
(Hitotsubashi University)6

6
I thank Kyoji Fukao for making the data available.

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 186 Colonial Development in a Comparative Perspective

6.9 Conclusion
The slow growth in India in the post-independence decades is a rela-
tive failure when compared to the rapid growth seen in East Asia. In
this chapter I have shown that the share of industry in GDP in the three
countries at the time of independence did not look that different. Thirty
years later, the industrial sector in the East Asian economies accounted
for a much larger share of GDP. Colonial policies towards extension of
primary education created a literate workforce for industry. In India, this
was missing. The concentration of human capital in the service sector
and not in industry is one of the big differences between India and South
Korea and Taiwan. The literature has often emphasized the differences
in policies after independence. Looking back at colonial policies provides
a different perspective on East Asia’s industrial success.

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 Conclusion
The Myths and the Realities of India’s
Long-Run Development

The first three decades after the independence of India in 1947 have been
seen as a failure of growth. A regulated economy led to inefficiency and
low growth. The architect of Indian planning, Prime Minister Jawaharlal
Nehru, did not put India on an East Asian path. The historical per-
spective taken in this book analyzes the post-independence decades in
terms of the context of policy making, the growth and development of
the Indian economy before independence, and the legacy of historical
institutions and economic policy. At the time of independence, India
was one of the poorest countries in the world. The globalized economy
in the British Empire had not seen prosperity. For decades, the economy
had been through stagnation. Agriculture, in particular food production,
had stagnated in most parts of the country. In 1947 India had a small but
modern industrial sector.
The question that I raised in the book is: How did India get there?
Did connections with the global economy of the British Empire lead to
impoverishment? How did the regulated economy and the loss of global
connections in independent India compare? What are the myths and the
realities of the connections to the global market?

C.1 Myths of the Market in a Colonial Economy

Markets functioned well under colonial rule and restrictions hindered
market activity after independence. The literature has myths on both
sides. ‘Colonialization was beneficial with rising trade and investment’
(Ferguson 2004) is one. ‘Colonial rule was extractive and reduced pre-
colonial prosperity’ (Tharoor 2018) is another. Ferguson in his book
Empire: How Britain Made the Modern World (2004) writes,
Average incomes rose by only 14 per cent between 1757 and 1947, while
British incomes rose by 347 per cent… Even if the British rule did not increase
Indian incomes, things might have been much worse under a restored Mughal
regime. (p. 117)

187

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 188 Conclusion

According to this statement, India fared better under British rule com-
pared to the state of the economy under the Mughals. It claims that
colonization integrated India into the global economy and provided
transport networks and access to Britain’s capital market. I have argued
in this book and provided empirical evidence that Indian GDP per capita
stagnated in the globalized economy of colonial India. Growth picked up
after independence in a regulatory regime as India moved towards pro-
tecting the economy from trade and foreign capital and Indianization of
the industrial sector and restrictions on private investment.
A different view of the global market comes from the recent book The
Inglorious Empire by Sashi Tharoor (2018):
Britain’s industrial revolution was built on the destruction of Indian textile
industries. The textiles were an emblematic case in point: The British set about
systematically destroying Indian manufacturing and exports… Ironically, the
British used Indian raw material and exported the finished product back to India
and the rest of the world adding the industrial equivalent of adding insult to
injury. (p. 216)
Looking at empirical evidence systematically tells a different story. I
have argued in Chapter 2 that decline of the traditional industry was
hard to stop. The labour saving technology of the industrial revolu-
tion gave British industry an advantage in the world market. As prices
of machine-made textiles tumbled, British goods displaced Indian
imports in the British market first, then in the third markets, and finally
in the Indian market. The effect of the decline in the traditional textile
industry was localized and did not have a large effect on the economy.
The estimated decline in industrial employment ranges from over 50
per cent (Bagchi 1976; Twomey 1983) to 28 per cent (Ray 2009) in
Bengal, which was the centre of the textile industry at this time. The
decline in industrial employment spanned over 30 years in the nine-
teenth century. Per capita consumption of textiles in India increased as
imports were cheaper.
From 1880, cotton textiles were produced by an emerging modern
industry using British technology imported by Indian entrepreneurs.
This industry was set up by Indian entrepreneurs in competition with
Lancashire and without any state support. It began to regain market
share from imports of British goods. Industrial growth during the first
half of the twentieth century was not trivial.
Chapter 1 shows that India was relatively prosperous in 1600 under
the reign of Akbar, as shown by the estimates of GDP per capita. At $682
India was well over the subsistence income level of $400 in 1600. The
decline in income began from the middle of the seventeenth century,
well before colonization. It coincided with the arrival of the European

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 C.1 Myths of the Market in a Colonial Economy 189

trading companies and the dramatic rise in textile exports. I have argued
that the share of the textile industry was too small to counter the decline
in per capita output in agriculture. By the nineteenth century the decline
in GDP per capita turned into stagnation. Although trade increased
from the middle of the nineteenth century, it did not turn economic
stagnation into growth.
When India was integrated into the global economy of the British
Empire, policies of the colonial administration to develop a modern
transport system and introduce property rights in land did not reverse
the decline in yield per acre in land in most parts of the country. It did
not stop stagnation in incomes in the largest sector of the economy.
Yield per acre in 1910 was lower than in 1600. GDP per capita tracked
agricultural output per capita. As the economy approached an ecologi-
cal crisis, irrigation covered only 20 per cent of the land under cultiva-
tion. The Nationalist historians have criticized the railways as serving
colonial interests. Though the lines initially linked the agricultural hin-
terland to the ports, over time the network became denser and linked
markets within the country. It reduced price fluctuations in response to
weather shocks and brought benefits to isolated communities. However,
evidence confirms that the colonial economy spent too little on irriga-
tion compared to the spending on the railways, which can explain agri-
cultural stagnation. The investment rate in the colonial economy was
only 7 per cent of GDP.
Despite the links with the British capital markets, few industries
received British investment before the First World War. The railways
and tea were the main beneficiaries. While British capital flowed to
export oriented sectors, Indian investment dominated the import substi-
tuting sectors, in particular, the cotton textiles industry. Community
networks of Indian merchants had accumulated enough wealth in trade
and informal banking to invest in the modern cotton textile industry.
The largest British investment in India was the railways, but it created
few backward linkages with the industry as in other countries, drawing
the criticism that the colonizers did not develop a capital goods indus-
try. Large-scale modern industry saw the fastest growth in output per
worker as the industrial sector rebalanced between the modern and the
traditional sectors.
The colonial administration introduced a modern education sys-
tem. Universities in the metropolitan cities created an elite with liter-
acy in English. But who were educated? At the time of independence
only 17 per cent of the population was literate. There was a large gap
between male and female literacy and only 142 out of 1,000 school age
children were at school in 1931, one of the lowest in the world. Public

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 190 Conclusion

investment in education was one of the lowest in the world. It was lower
than in other British colonies and other underdeveloped countries, such
as Brazil and Mexico, and also lower than in the princely states. India
spent a large share of education budget on secondary and tertiary edu-
cation rather than primary education for all. This had consequences for
human capital in different sectors. Most of the educated workers were
in services, while most industrial and agricultural workers were not lit-
erate. This had implications for productivity growth in these sectors.
The higher education bias of colonial education policy persisted in inde-
pendent India and is one of the factors that may have given the service
sector an advantage at the cost of a competitive industrial sector.

C.2 The Transition from a Colonial Economy

India moved from an open economy to one of the most regulated econo-
mies of the world. The new government in independent India embraced
self-sufficiency as the means to develop the economy. Industrial develop-
ment was at the core of this policy, as in many other parts of the under-
developed world. Many countries in Latin America, newly independent
countries in Asia, and Africa turned away from global connections too.
India moved from an open economy to one of the most regulated econ-
omies of the world. The strategy paid off for a short period as industrial
growth increased. The investment rate more than doubled within ten
years. Agricultural growth turned positive for the first time in half a cen-
tury with investment in new infrastructure. The Green Revolution that
followed in agriculture had a large impact on many sectors of the econ-
omy and society. However, as industrial growth rate began to decline,
economic reforms were introduced. Under the reforms, Indian growth
more than doubled. The economic reforms have been seen as a turning
point in India’s economic growth since independence. However, a histor-
ical perspective makes the low growth of the Nehruvian period a turning
point from stagnation of the colonial period to modern economic growth.

C.3 A Myth of the Market

It has been argued that India was stuck in a low growth regime due to the
regulatory policies (Ahluwalia 1991; Panagariya 2008). India’s growth
was low in comparison to the fast-growing economies in East Asia, but
not in comparison to the long-run trend. There was an efficiency cost of
regulation, but planned development had put the economy on a growth
path. The trebling of investment rate within two decades compensated
for the loss of efficiency (Delong 2003). Pro-business reforms gradually

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 C.3 A Myth of the Market 191

removed industrial regulation from 1980 and put India on a higher

growth path (Rodrik and Subramaniam 2005). Pro-market reforms from
the 1990s followed. A long view sees the turning point of the Nehruvian
period in the context of colonial policies and its impact on the economy.
The historical perspective in this book also helps to rethink some of
the views on regional development today. The high GDP per capita of
some regions, such as Maharashtra and Gujarat, show historical persis-
tence. The Bombay Presidency in colonial India was one of the most
prosperous regions. The regions that were under the landlord system
are more underdeveloped in several dimensions today compared to non-
landlord regions. The advantage in literacy by certain castes due to their
traditional occupations had provided these groups an advantage in the
new occupations in colonial India and the inequality in access to new
opportunities after 1950 showed persistence. It also helps in understand-
ing India’s advantage in the service sector.
Comparisons have been made with East Asia as a critique of the
Nehruvian policies. As South Korea and Taiwan gained independence
from Japan, they too turned to import substitution in the 1950s in
order to develop the industrial sector. In 1950, India, South Korea,
and Taiwan did not look very different in terms of the share of indus-
try in GDP. However, the strategy of import substitution differed
across these countries. While India focused on capital goods produc-
tion, South Korea and Taiwan developed industries that gained inter-
national competitiveness. A historical perspective in this book brings
colonial legacy into the discussion, as a factor that influenced the dif-
ferent outcomes.
The investment in agriculture in the Japanese colonies raised agri-
cultural productivity and created different conditions for movement of
workers from agriculture to industry. This was aided by widening access
to primary education in the Japanese colonies. Both South Korea and
Taiwan had a literate workforce that could work in the emerging indus-
tries after independence. The education level of the workforce increased
rapidly from the 1950s. Most workers in Indian industries had no educa-
tion as access to primary education had been limited under British poli-
cies. India has a concentration of educated workers in the service sectors
and has moved towards a service sector-led growth. The different paths
of development in the two East Asian economies and India have colonial
origins. In this book I have focused on factors from history that account
for policies and outcomes in independent India. The regulatory regime
in independent India marked a reversal of fortune from stagnation under
the global economy of the British Empire to economic growth under
state-directed development.

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 Index

Abul Fazl, 19 during Great Depression, credit

agriculture, as economic sector. See also institutions during, 66–67
irrigation policies Green Revolution
arable land access to credit and, 73
during Mughal Empire, 45–46 developmental outcomes of, 73–74
yield per acre, 47 in independent India, 47, 69–74
Bengal Rent Act of 1859, 67 irrigation policies and, 71–72
in British India, 43, 46, 74–76 gross domestic product per capita and,
colonial trade, 43–44 29–30, 32, 33
commercialization of, 51–55 in independent India, 68–73
composition of revenue (1858–1940), agricultural output growth, 71
50 Green Revolution, 47, 69–74
East India Company and, 48–49 land reforms, 68–69
investment in land, 56–57 under Nehru, 68
land revenue system, 47–51 Operation Barga, 69
land taxes, 49 tenancy reform, 69
land tenure systems, 44–45, 47–51 yield per acre in, 63, 71
property rights in, 48–49, 56–57 Japan and, 172–175
railway networks and, 51, 54–55, 62 land productivity, 74
ryotwari system, 49–51 land rent theories, 49
shipping technology and, 51–52 during Mughal Empire, 45–47
stagnation of, 44, 47 extension of arable land, 45–46
yield per acre in, 63 Opium Wars and, 51–52
zamindari system, 47–48, 67, 68–69 perspective on, 172–175
commercialization of in pre-colonial era, 45–47
in British India, 51–55 under Punjab Land Alienation Act,
economic prosperity, 62–64 66–67
by region/crop, 64 railway networks and
cotton production, 52 in British India, 51, 54–55, 62
credit institutions, 65–68 regional famines and, 65
under Bengal Agricultural Debtors in South Korea, 172–175
Act of 1935, 67 in Taiwan, 172–175
under British Moneylenders Acts, 67 under Tenancy Act of 1885, 67
during Great Depression, 66–67 trade and
moneylenders, 67 in British India, 43–44
under Deccan Agriculturalist Relief Act, with China, 51–52
66–67 with U.S., 52
Deccan riots, 66–67 utilitarianism and, 49
as export, 52 workforce demographics, 121–122
famines and, 64–65 Akbar (Emperor), 5, 19
Bengal Famine of 1943, 64–65 Ambedkar, B. R., 149
Famine Commission of 1880, 59–60 ancient inequality, 139–140

212

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 Index 213

Argentina, economic development in, 16 in census, 145–146

Arthashastra, Kautilya, 57–58 under Punjab Land Alienation Act of
Asia. See also East Asia; South Asia; specific 1901, 145–146
countries Dalits, 149–150
GDP per capita in (1910–1950), 18, Gujarati Kanbis, 148–149
162 height differences and, 148
import-substituting industrialization Hindu, 146
in, 37 in independent India, 148–151
Aurangzeb (Emperor), 5–6 inequality through, 144–145
Kshatriyas, 145
Bangladesh, independence for, 8 literacy and, 114–115, 147
Bengal Famine of 1943, 64–65 by province, 147
Bengal Rent Act of 1859, 67 occupations informed by, 110–113
Birla, Ghanashyam Das, 98 new, 114–115
Bombay Plan of 1944, 97–98 Shudras, 145
Brahmans, 114–115, 145 social mobility, 148–151
Brazil, economic development in, 16 sanskritization and, 148–149
British Empire. See also colonization Vaishyas, 145
British India and, 5 varnas in, 145
British India. See also agriculture; textile China
industry; specific topics agricultural trade with India, 51–52
agricultural trade in, 43–44 Taiwan and, 166–167
Bengal Rent Act of 1859, 67 Churchill’s Private War (Mukherjee), 64–65
Calico Acts, 79 cloth wages, 25–28
caste system in, 145–151 colonial India. See British India
in census, 145–146 colonization, colonial policies and. See also
under Punjab Land Alienation Act of British India
1901, 145–146 comparative perspectives on, 161–164
colonization in economic interdependence and,
economic underdevelopment, 10–15 165–167
industrialization influenced by, 1–2 Great Divergence and, 3
Deccan Agriculturalist Relief Act, 66–67 underdevelopment as result of, 10–15
East India Company and, 3 commodity trade, in South Korea,
Mughal Empire defeated by, 6–7, 8 171–172
education system in, 118 composition of exports, 171
Great Divergence in, 3 consumption, as measure of economic
gross domestic product for development, 25–28
during nineteenth century, 2 consumption baskets, welfare ratios and,
per worker, in Rupees, 184 27–28
income inequality in, 141 consumption wages, 25–28
irrigation policies in, 58–61 Corn Laws, Great Britain, 34
Punjab Land Alienation Act of 1901, cotton production, 52
66–67, 145–146 credit institutions, in agricultural sector,
sectoral labour productivity in, 128 65–68
Tenancy Act of 1885, 67 under Bengal Agricultural Debtors Act
Trade Union Act of 1926, 106 of 1935, 67
urbanization in, 16, 18 under British Moneylenders Acts, 67
Buchanan, Francis, 145 during Great Depression, 66–67
moneylenders, 67
Calico Acts, British India (1700/1721), 79
caste system, 145–151 Dalits, 149–150
in agricultural occupational structure, Datt, Gourav, 135, 137–139
65–66 Datta, Rajat, 2
Brahmans, 114–115, 145 Deccan Agriculturalist Relief Act (1879),
in British India, 145–148 66–67

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 214 Index

Deccan riots, 66–67 in independent India, 37–42

deindustrialization, 2 under Gandhi, I., 38–41
in British India, 78–82 under Gandhi, R., 39–41
East India Company and, 78 industrialization in, 37–38
of textile industry, 77, 78–82 under Nehru, 37–38, 41–42
in Bengal province, 81 political crises in, 38–39
Disputes Act of 1947, 106 private investment in, 39–40
Dutt, R.C., 1 pro-business reforms, 39–40
pro-market reforms, 39–40
East Asia. See also China; Japan; South during Mughal Empire, 18–20
Korea; Taiwan assessment by European travellers, 19
economic development in, 33–34 decline in grain wage, 28
import-substituting industrialization poverty in, 19
in, 37 in South India, 19–20
East India Company, 3 wage levels, 21
agricultural economy and, 48–49 overview of, 42
Mughal Empire and, 6–7, 8, 16 per capita income, 29–32
textile industry and, 78 GDP per capita, 29, 133
wages, 25 qualitative evidence of, 18–20
Economic Commission of Latin America, production factors, 20
37 wages as, 20
economic development quantitative evidence of, 18–20
in East Asia, 33–34 living standards measures, 20–21
GDP per capita as measure of, 18 silver wages, 22–24
urbanization as measure of, 16, 18 trade and
economic development, in India balance with Great Britain, 36
in British India Prebisch–Singer thesis for, 34–35
market economies in, 20 share of trade in income (1835–2000),
urbanization in, 20 35
cloth wages and, 25–28 wages and
consumption measures, 25–28 East India Company and, 25
consumption wages, 25–28 during Mughal Empire, 21
economic stagnation, 37–42 regional data for, 22–23
globalization and, 34 for unskilled labourers, 24, 28
globalization and, 33–36 welfare ratios and, 25–28
economic stagnation and, 34 comparison with Great Britain, 27–28
integration into world economy, consumption baskets, 27–28
35–36 definition of, 27
grain wages, 22–24, 26 economic drain, 1–2
declines in, 28 economic history. See also economic
during Mughal Empire, 28 development
Great Divergence and academic literature on, 1–3
gross domestic product per capita colonization of India influenced by, 1
and, 32 conceptual approach to, 1–3
between 1600–1947, 36 methodological approaches to, 2–3, 4
Green Revolution, 38, 39 data digitization, 2
gross domestic product per capita, 31 economic stagnation. See stagnation
agricultural sector, 29–30, 32, 33 education system
changes by sector (1600–1871), 28, in India
30 in British India, 118
changes by sector (1900–2000), 41 enrollment rates, 119
export industries, 29–30, 31, 32, 33 government spending on, 118–119
Great Divergence and, 32 literacy rates and, 116–120
growth rate for, 40–42 Victoria Jubilee Technical Institute,
import industries, 30 120
industrial exports, 32, 33 in Japan, 175–178

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 Index 215

in South Korea, 175–178 between 1600–1947, 36

gender gap in enrollment, 177 in Indonesia, 163
in Taiwan, 175–178 in South Korea, 163
gender gap in enrollment, 177 in Taiwan, 163
Empire (Ferguson), 1 Green Revolution, 38, 39
employment. See labour force participation agricultural economy and
Europe, Great Divergence and, 3 access to credit and, 73
export industries developmental outcomes of, 73–74
agricultural, 52 in independent India, 47, 69–74
gross domestic product per capita and, irrigation policies and, 71–72
29–30, 31, 32, 33 gross domestic product (GDP), per capita.
in South Korea, 171 See also economic development,
in independent India; industrial
Famine Commission of 1880, 59–60 labour; industrialization; labour
famines, 64–65 force participation
Bengal Famine of 1943, 64–65 in Asia (1910–1950), 17, 162
Famine Commission of 1880, 59–60 in colonial economies, 163
Ferguson, Niall, 1 in developing nations, 108–110
Foreign Exchange and Regulations Act of in 1910–2000, 162
1974, 102 in 1950, 17
sectoral shares in employment, 109
Gandhi, Indira, economic development sectoral shares of value, 109
under, 38–41 in Great Britain, 1600–1871, 31
Gandhi, Mohandas, 7 in India, 108–110
Gandhi, Rajiv, economic development after independence, 16, 18
under, 39–41 during nineteenth century, 2
GDP. See gross domestic product irrigation policies and, 62
gender inequality, 151–158 in Latin America (1910–1950), 17, 162
life expectancy rates and, 152–154 in South Korea, 185
marriage conventions and, 157–158 in Taiwan, 185
sex ratio by, 154–156, 157 Gujarati Kanbis, 148–149
in South Korea, 177
in Taiwan, 177 Habib, Irfan, 2, 20–21
globalization, economic development in Hamilton, Alexander, 98
independent India and, 33–36 Hamilton, Francis Buchanan, 131
economic stagnation and, 34 Heston, Alan, 33
grain wages, 22–24, 26 Hindu caste system, 146
Great Britain. See also British Empire; human capital, service sector and,
British India; colonization 126–129
Corn Laws, 34 by sector, 128
gross domestic product per capita Humayun (Emperor), 5–6
(1600–1871), 31
India welfare ratios and, 27–28 Imperial Preference Agreement, 90
sectoral labour productivity in, 128 import industries, in India, gross domestic
textile industry in product per capita, 30
advantage in textile production over income inequality, 139–144
British India, 79, 80–81 in British India, 141
interwar years, 94–95 changes in top income shares, 143
trade balance with India, 36 under Nehru, 142–144
Great Depression, credit institutions by province, 141
during, 66–67 share of growth by group, 145
Great Divergence, 3 incomes, per capita
economic development in independent economic development and, 29–32
India and, 163 GDP per capita, 29, 133
gross domestic product per capita gross domestic product per capita and,
and, 32 29

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 216 Index

India, as independent state. See also gross domestic capital formation and, 62
agriculture; British India; economic in Mughal Empire, 57–58
development; Mughal Empire; Nationalist critique of, 59
specific topics percent of land under irrigation, 58
caste system in, 148–151 in pre-colonial era, 57–58
Disputes Act of 1947, 106 share of food crops (1920), 61
Foreign Exchange and Regulations Act share of total cultivated land and, 72
of 1974, 102
geography of, 5 Japan
Great Divergence in, 163 agricultural development in, 172–175
gross domestic product in, 16 educational investment in, 175–178
independence movement, 7 import-substituting industrialization
industrial development in, 164–165 in, 37
Muslim League in, 7 industrial development and, 164–165,
partition of, 7–10 167–171
boundary with Pakistan, 8 South Korea and
sectoral labour productivity in, 128 investment in, 169
structural change in, 181–184 under Japanese rule, 166–167
India at the Death of Akbar (Moreland), textile industry in, 90, 92
18–19
Indonesia Kayasthas, 115
economic development in, 16 Korea. See South Korea
Great Divergence in, 163 Kshatriyas, 145
industrial labour, in textile industry
under Disputes Act of 1947, 106 labour force participation, workforces and
labour recruiters and, 104–107 caste system and, 110–113
in organized/unorganized sectors, 106 new occupations informed by,
under Second Plan, 105–106 114–115
under Trade Union Act of 1926, 106 changes in productivity in, 122–126
industrialization in Great Britain, 128
colonial policies as influence on, 1–2 in India, 128
in independent India, 37–38 historical differences in, 122–126
inequality, in India output per worker by sector, 123, 125
ancient inequality, 139–140 sectoral shares of GDP, 121, 122
caste, 145 structural change in, 121–122
gender, 151–158 Lalbhai, Kasturbhai, 98
life expectancy rates and, 152–154 land inequality, 139
marriage conventions and, 157–158 land reforms, in independent India, 68–69
sex ratio by, 154–156, 157 land revenue systems, 47–51
income, 139–144 land taxes, 49
in British India, 141 land tenure systems, 44–45, 47–51
under Nehru, 142–144 ryotwari system, 49–51
by province, 141 landlord system, in India. See zamindari
share of growth by group, 145 system
top income shares, 143 Latin America. See also specific countries
regional Economic Commission of Latin
per capita provincial GDP, 132 America, 37
by province, 132–134 economic development in, 16
standards of living, 131 GDP per capita in (1910–1950), 17,
Inglorious Empire (Tharoor), 1 162
irrigation policies, agricultural sector and, import-substituting industrialization
57–61 in, 37
in British India, 58–61 Lewis, Arthur, 121–122
comparative yields per acre, 60 List, Fredrich, 98
Famine Commission of 1880, 59–60 literacy rates, in India, 114
government spending on, 62 caste system and, 114–115, 147

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 Index 217

by province, 147 private investment, in independent India,

demand and supply of education, 39–40
116–120 pro-business reforms, in independent
education system and, 116–120 India, 39–40
by gender, 116–120 pro-market reforms, in independent India,
service sector and, 117 39–40
urban/rural, 116 property rights, in British India, 48–49,
56–57
Mahalanobis, Prasanta Chandra, 96 Punjab Land Alienation Act of 1901,
Mahalanobis model, 96 66–67, 145–146
Malaysia
British colonial policies in, 2 Radcliffe, Cyril, 8
economic development in, 16 railway networks
Manusmriti, 130 agricultural economy and
market economies, in British India, 20 in British India, 51, 54–55, 62
Marwari traders, in textile industry, 87 regional famines and, 65
Mill, James, 49 textile industry and, 88–89
MNCs. See multinational corporations Ram, Lala Sri, 98
Moosvi, Shireen, 2, 20–21 regional inequality
Mughal Empire per capita provincial GDP, 132
agricultural policies during, 45–47 by province, 132–134
extension of arable land, 45–46 standards of living, 131
irrigation policies, 57–58 Rosenstein–Rodan big push theory, 96
boundaries of, 5 Roy, Raja Ram Mohan, 117
East India Company and, 6–7, 8, 16 ryotwari system (land tenure system),
economic development in, 18–20 49–51
assessment by European travellers, 19
grain wage, 28 sanskritization, of caste system, 148–149
poverty in, 19 Second Plan, 98–99, 105–106
in South India, 19–20 service sector
wages, 21 analysis of, 129
European trading companies during, 6 expansion of, 125–126
multinational corporations (MNCs), 102 growth rates in, 126
historical development of, 108–110
Naoroji, Dadabhai, 1 human capital and, 126–129
Nehru, Jawaharlal, 7, 8–10, 187. See also by sector, 128
India, as independent state literacy rates and, 117
agricultural policies under, 68 Shah Jahan (Emperor), 5–6
economic development under, 37–38, Shastri, Bahadur, 38–39
41–42 Shudras, 145
income inequality under, 142–144 silver wages, 22–24
Singh, Vishwanath Pratap, 149–150
Operation Barga, 69 South Asia. See also India; specific countries
Opium Wars, 51–52 geography of, 5
rainfall map (1908), 6
Patel, Vallabhbhai, 7 South Korea
per capita incomes. See incomes agricultural development in, 172–175
poverty commodity trade in, 171–172
headcount ratio, 135, 136, 137, 138 composition of exports, 171
literacy and, 138 economic development in, 16
Indian National Congress and, 135 after 1950, 178–181
measures of, 139 economic interdependence of, 165–166
in Mughal Empire, 19 educational investment in, 175–178
regional differences in, 134–139 gender gap in, 177
poverty gap index, 134–139 Great Divergence in, 163
Prebisch–Singer thesis, 34–35 gross domestic product per worker, 185

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 218 Index

South Korea (cont.) advantage in textile production over

import-substituting industrialization British India, 79, 80–81
in, 37 during interwar years, 94–95
industrial development in, 164–165, in independent India
167–171 business groups in, 100–102
manufacturing industries in, 170 economic reforms, 99, 106
Japanese investment in, 169 Foreign Exchange and Regulations
structural change in, 181–184 Act of 1974, 102
Sri Lanka, economic development in, 16 import-substituting industrialization,
stagnation, in independent India, 37–42 98–99
globalization and, 34 industrial growth by sector, 99
Suez Canal, 51–52 industrialization policies in, 96–99
Swaminathan, M. S., 69 labour recruiters and, 103
Mahalanobis model, 96
Taiwan management practices in, 102–103
agricultural development in, 172–175 multinational corporations, 102
under Chinese rule, 166–167 under Nehru, 96, 107
economic development in, 16 planning policies in, 96–99
after 1950, 178–181 private sector in, 96–98
economic interdependence of, 166–167 Rosenstein–Rodan big push theory, 96
educational investment in, 175–178 Second Plan, 98–99, 105–106
gender gap in, 177 industrial labour and
Great Divergence in, 163 under Disputes Act of 1947, 106
gross domestic product per worker, 185 labour recruiters and, 104–107
import-substituting industrialization in organized/unorganized sectors, 106
in, 37 under Second Plan, 105–106
industrial development in, 164–165, under Trade Union Act of 1926, 106
169 during interwar years
manufacturing industries in, 170 British firms, 94–95
structural change in, 181–184 modernization movement, 89–93
tariffs, for textile industry, 89–93 Japanese, 90, 92
Tata, J. R. D., 98 modernization of, 82–88
Tenancy Act of 1885, 67 entrepreneurs’ role in, 91
tenancy reform, in independent India, Fiscal Commission of 1923, 89
69 Industrial Commission of 1916–1918,
textile industry 89
analysis and assessment of, 107 industrial development and, 88–93
in British India during interwar years, 89–93
Bombay Plan of 1944, 97–98 railway networks in, 87–89
British advantage in textile tariffs and, 89–93
production, 79, 80–81 Thakurdas, Purushottamdas, 98
Calico Acts, 79 Tharoor, Shashi, 1
deindustrialization during, 78 trade, with India
East India Company and, 78 agricultural
expansion and growth of, 92 in British India, 43–44
Imperial Preference Agreement, 90 with China, 51–52
Marwari traders, 87 economic development through
personnel in, 170 from 1860–1947, 34–35
subsectors in, 93 during interwar years, 36
capital formation and, 97 Prebisch–Singer thesis for, 34–35
deindustrialization of, 77, 78–82 share of trade in income (1835–2000),
in Bengal province, 81 35
in British India, 78–82 trade balance with Great Britain, 36
East India Company and, 78 Trade Union Act of 1926, 106
in Great Britain Tughlak, Feroz Shah, 57–58

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 Index 219

underdevelopment, colonization as regional data for, 22–23

influence on, 10–15 for unskilled labourers, 24, 28
urbanization Wallace, Shaw, 102–103
in British India, 16, 18 welfare ratios, 25–28
economic development and, 16, 18 comparison with Great Britain, 27–28
utilitarianism, 49 consumption baskets, 27–28
definition of, 27
Vaishyas, 145 women. See also gender inequality
varnas, in caste system, 145 in Manusmriti, 130
Victoria Jubilee Technical Institute, missing women by age groups, 159
120
Yule, Andrew, 102–103
wages, economic development and
East India Company and, 25 zamindari system (landlord system),
during Mughal Empire, 21 47–48, 67, 68–69

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