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Economic Impact of British Rule in India

Drain of Wealth

• Concept: The economic transfer of resources from India to Britain without an equivalent return of goods or services.
• Primary Proponent: Dadabhai Naoroji (in his book “Poverty and Un-British Rule in India“).
  • Supporters: R. C. Dutt, G. Subramania Iyer.
  • Critic: Sir Syed Ahmad Khan did not believe in the theory.
• Form: Took the form of “unrequited exports.”
• Primary Cause: Considered the primary cause of Indian poverty.
• Home Charges: A major component of the drain.
  • Definition: Funds spent in England by the Secretary of State on behalf of the Indian government.
  • Components:
    • Payments for the India Office in London.
    • Salaries and pensions of British personnel in India.
    • Military supplies.
    • Interest on loans.
    • Investments in railways.
  • Exclusion: Funds used for waging wars outside India were not part of Home Charges.
• Other Causes: The cost of British external rule, administration, and expenses for building/maintaining territories.

Deindustrialization and Trade Policies

• Start of Process: Began in 1813.
• Aggravating Factors:
  • Abolition of the East India Company’s monopoly trade rights (except for tea and trade with China).
  • The Government of India Act of 1833 ended the Company’s commercial activities.
• 18th-Century Export Staples: Primary commodities exported by the English East India Company from Bengal were cotton, silk, saltpetre, and opium.
• Imperial Preference Policy:
  • Granted special privileges to British imports in India.
  • Low import duties on British goods into India but high duties on Indian exports to Britain.
• Impact of the Industrial Revolution:
  • Primary Effect: The Indian handicrafts industry was ruined.
  • Causes:
    • British policies forced India to export raw materials and import finished goods.
    • Mechanized British production created cheaper goods.
    • High British tariffs on Indian products.
• Stunted Industrial Growth:
  • A key reason was the preference of the rich to invest their capital in land rather than in industry.
• Other Criticism: Karl Marx criticized British economic policy as “disgusting” for destroying Indian local industries.

Commercialization of Agriculture

• 19th-Century Result: British rule led to the commercialization of Indian agriculture.
• Purpose: To compel farmers to grow crops for export to supply raw materials to British industries.
• Consequences:
  • Led to a decline in the urban population.
  • Further hampered domestic industries.
• Example: Indigo was a major cash crop grown under this system.

Land Revenue Systems

• Overall Result: The introduction of different systems led to the creation of different classes within the Indian peasantry.
• Coverage Summary:
  • Permanent Settlement: 19% of British India.
  • Ryotwari System: 51% of British India.
  • Mahalwari System: 30% of British India.

A. Permanent Settlement (Zamindari System)

• Introducer: Lord Cornwallis in 1793.
• Agreement Made With: The Zamindars (landlords), not the peasants.
• Region: Bengal, Bihar, Odisha, and parts of U.P. (Varanasi).
• Key Features:
  • Land revenue was constitutionalized; a fixed sum was guaranteed to the Company.
  • Recognized Zamindars as hereditary owners of the land with rights to sell or transfer it.
  • Revenue demand was fixed permanently.
  • Zamindars had to pay a fixed amount on a specific date or risk losing their rights.
• Issues:
  • Litigation: The system led to a significant increase in litigation.
  • Pattas: Zamindars were required to issue land deeds (pattas) to farmers but often did not because there were no officials to check on them.
• Later Development: The Bengal Tenancy Act of 1885 was introduced to define the rights of landlords and tenants in response to peasant anger over high rents.

B. Ryotwari System

• Associated With: Sir Thomas Munro and Captain Reed.
• Region: First introduced in the Baramahal district of Tamilnadu. Later in Madras Presidency, Bombay Presidency, Eastern Bengal, Assam, and Coorg.
• Key Features:
  • Ownership rights were given directly to the peasants (Ryots).
  • The British government collected taxes directly from the peasants.
  • The Government gave Pattas (title deeds) to the Ryots.
  • Lands were surveyed and assessed before being taxed.
  • Tax rates were high: 50% in dry areas and 60% in irrigated areas.
• Key Term: Mirasidar – A designated revenue payer to the State in this system; an influential person who claimed control over village land.

C. Mahalwari System

• Region: U.P., Central Province, and Punjab.

Other Economic Facts

• Military Expenditure: During British rule, 40% of the Central government’s revenue was spent on the Military force.
• Tea Industry: The first tea company in Assam, The Assam Company, was established in 1839 and was based in Nazira.
• Key Term: Banian – An Indian agent who worked for the East India Company in business activities.

Know More About Economic Impact of British Rule on India:

• Economic Impact of British Rule on India– Old Year Questions and Answers
• Economic Impact of British Rule on India One Liner Questions & Answers