By Aanchal Agarwal
Mercantilism is a theoretical concept that propagates ‘economic nationalism’ utilising three key features. First, it encourages countries to export more than it imports, to achieve inflow of foreign bullion (or gold), resulting in a “balance” of trade. Secondly, this theory takes a radical stance as it utilizes the idea of zero-sum gamein nation building- essentially meaning that a country cannot progress unless another country begins to regress. Thirdly, the theory encourages a country to utilize, or rather deplete, natural resources in order to promote economic growth. In a speech at Oxford Union, Shashi Tharoor argues that in the pre-colonial era India’s share of the world market was 23%, however, by the time the British left India in 1947, this figure plunged below 4%. Additionally, by referring to India as Britain’s “cash cow”, Tharoor highlights that the British economy was directly benefiting from India’s slumping economy. This inverse economic relationship shows how Britain’s economy progressed as India’s economy suffered, and this hints towards the zero-sum game that is defined under the mercantilist theory. In light of that, it is fair to assume that ‘colonization is a practical implementation of mercantilism’, which as a concept was followed by the British East India Company in the early 18th century when it came to India, to trade. The “Company” used negotiation and suppression tactics to dominate politics, and take control of local territories. Their efforts were undermined as they failed to grasp complete control over India, and monarchical rule in certain areas prevailed. It is important to mention that the collection of data to substantiate the economic downfall of India is scarce in nature, because India was not a “unified” nation under one power. Bearing that in mind, this paper uses regional data, historiographies and economic theories to evaluate land reforms, foreign trade and de-industrialization in the pre-1857 era. It will aim to showcase the economic degradation that India faced due to the British East India Company.
India was an agrarian country, because of which the primary objective of the British East India Company was to maximise efficiency with land reforms. Primarily, there were three systems implemented by the Company, namely, Revenue farming (1766) the Permanent Settlement (1790) and Ryotwari Settlement (1798). Up until the 1960’s, a relatively efficient hierarchy between landowner-tenant-labourer was present. Nonetheless, the Company reshaped this relationship in order to encompass a higher role of the state making it state-landowner-labourer. Assuming the Indian landowners to be efficient like Britain’s, the Company displaced the middle section of tenants. Yet, they let the zamindars have rights because they were unaware of the revenue collection of the lands. In order to curb their power, the Company auctioned the lands, that made a zamindar’s ownership short and costly. Due to this reason, the zamindars became corrupt and tried maximising profits in their short tenure by exploiting the peasants. This instead led to the peasants bearing the burden of paying high costs with their limited revenue, causing them to flee the fields at the time of payment, or living off in debt. Due to the dismay between both, zamindars and peasants, the output fell drastically, causing multiple famines. The 1971 famine in Bengal wiped out one-third of the entire population reflecting the depressed Economic condition due to the Revenue farming system. Realising a depletion of inputs like silk and cotton, the Company introduced the Permanent settlement with the hope that zamindars would be grateful to the company for allowing them to retain the land for a long period of time, and in return they would have to pay taxes. This would address both problems that prevailed during Revenue Farming. The zamindars were given the liberty of charging any amount, however, in return, zamindars were expected to pay the fixed taxes in time, or would lose their property. The total tax expectation was Rs. 26.8 million at that time, which was “the absolute maximum” according to Shekhar Bandyopadhyay. In a span of 10 years, 41% of the zamindars in Bengal lost their lands showcasing the overestimation in the Company’s economic planning, and irony in their “permanent” settlement system. Though fictitious, the zamindars were given dominant rights over peasants, which resulted in further decline of production. The corrupt zamindaris failed to follow the patta (the written agreement between a peasant and a zamindar) resulting in widespread exploitation of peasants. Infact, many historians widely acclaim that the “permanent settlement” system demeaned the rights of the peasants, which reflects upon the system’s failure. To increase peasant rights and remove inefficiencies due to intermediators, the Company introduced the Ryotwari system, forming a direct relationship between the ryot– the cultivator-and the state. Using this system the Company aimed towards evaluating the land productivity based on which the tax revenue would be charged. Also, with a direct relationship between the producer and the collector, reasons for revenue decrease could be collected easily. Though this system prevailed for a long time and spread to many regions, other Economic problems arose.
The evaluation of independent lands were often done inefficiently only to overestimate the value that the peasants had to pay, resulting in economic despair in certain regions of India. As stated in his strongly stated argument, Surendranath Sen believes that the Company’s unjust attitude towards the zamindars led to widespread unemployment which later became a primary causation for the 1857 mutiny. Apart from this, in order to keep a tap on the individual produce, a lot of administrative resources were utilised, which, in economic terms, is seen as a welfare loss. A conclusion whether the system was a success or not cannot be evaluated because different regions had different outcomes. However, in aggregation, this reform was comparatively efficient because the government revenue increased and didn’t have explicit failures like that of Revenue farming and Permanent Settlement. As a summary, the swift land reforms by the East India Company follow the trial and error method, justifying Barabara D. Matcalf criticism of the reforms being “chaotic experiments”. The efficient hierarchy of state-landowner-tenant-laborer was transformed to state-laborer, that also resulted in widespread unemployment. Hence, qualitatively, India’s economic downfall in the pre-1857 era is justified when land reforms are taken into consideration.
India’s trade and commerce was rich in the pre-1857 era, however with the intervention of the British East India company, executive decisions in relation to foreign trade was taken by the Company. Using the handloom industry and consignment trade practice economic complication under the Company, will be addressed. Though India was an agrarian country, it was well equipped to industrially produce handlooms. As a matter of fact, in the early nineteenth century, India produced 24% of the global handloom market. It was so popular that English in 1870’s placed high tariffs of 15% on the handlooms. In 1834, India’s overall growth rate of trade reflected a 4-5% increase, however the national income increase in 1868 was just 1.5%. Because of a lack of numerical data, 1868’s data is being utilised, however this will not hinder our analysis because the year is close to our timeline. Any how, if trading went up by 4%, essentially the national income should have also increased by 4%; however a 2.5-3.5% of difference in the anticipated national income reflects manipulation and corrupt practice of the Company to slyly acquire Indian goods at negligible prices. Rather, the consignment trade practice throws light on the missing national income. Consignment trade is when a foreign distributor (the Company) collects, manages, and sells goods instead of the exporter (India). This system contains two major flaws, i.e. price unpredictability after-sale prices. The company auctioned prices for the Indian goods it sold, which resulted in an unpredictable price; the economists define this as “adverse selection” because the unpredictability in the market keeps the sales low. Another astonishing fact is the payment to the exporter after the good is sold- this results in a dilemma, why would a foreign supplier who is in control of the goods return the unsold items? Considering the fact that the Company was in control of India’s foreign trade, it is not surprising that though there was a positive growth in trade, the national income did not show the same trend in growth. “Poverty of India” written by Dada Bhai Naraoji, gives us a first-hand statistical mismatched information, thereby supporting our claim.
The British industrialisation was built on the Indian de-industrialisation. In the year the 1811, the export of cloth and raw cotton was 33% (of the total export) and 4.9%, respectively. However, in the year 1850, the export of cloth and raw cotton was 0% and 19.1%, respectively. This reflects that initially England’s domestic market was stagnant, due to which their motive was to acquire cheap cloth from India. However, as England became industrially sound, they required raw materials rather than the finished goods, resulting in an expansion of export of raw cotton and a decline of finished cloth from India, as indicated in the statistical values presented above. The impact of England’s industrialisation was rather detrimental to India’s economy because Britain not only rejected Indian cloth, but used India to sell their finished cloth from India’s raw materials. By levying high taxes on the domestic handlooms, the British not only crushed global competition, but also forced decline of handlooms in India itself. Approximately, 4-5 million people working in the handloom industries became unemployed, resulting in a sweeping shift of population from industries to agriculture. The widespread unemployment forced them to take low paying occupations, intensifying their poverty. Therefore, the above claims aim towards highlighting the fact that India’s trade and commerce was crushed and domestically a state of anarchy was created due to the exploitative economic policies followed by the British East India Company pre 1857.
In conclusion, the analysis done for land reforms, foreign trade and deindustrialization in India, show a direct correlation between India’s economic downfall and Britain’s rise as an economic power. By causing swift changes in the land systems of agrarian India, not only did the Company disrupt the agrarian structure, but they dismantled the zamindars and tenants that later resulted in the Company’s downfall. The analysis of India’s foreign trade resulted in identification of unfair economic practices by the Company that indeed was detrimental for the Indian economy. Finally, A direct correlation was reached between Britain’s economy positively growing and India’s economy declining, which were backed by statistics to show that the displacement of resources was done by the Company. The massive involvement of the company in stripping off India of its economic resource is evident and hence to a great extent the British East India Company is responsible for the economic downfall of India in the pre-1857 era. In the analysis of land reforms, foreign trade practices and de-industrialisation we can deduce that the British East India Company used India as a practical platform for utilising mercantilist theory. By using the zero-sum game, depletion of India’s resources and exporting it back to their own country they gained an unfair advantage in nation-building.
About the author: Aanchal Agarwal is a second year student of BA(Hons.) Economics at Jindal School of Government and Public Policy
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