Indian Economic History:Part 1

The decline of Indian manufacturing sector

This post will be one among a series of posts relating to the Indian economic history based on the book by Romesh Chunder Dutt called ‘The Economic History of India.’[Published 1902]

Being cognizant of what happened to the economy during the British rule in India will enable us to understand the causes and reasons of some of the contemporary social and economic issues. A thorough understanding of the British policies in India will bring to the fore the reasons why India, a relatively strong and mighty country earlier, faced famines, debts, etc.

This post tries to examine certain historical incidents brought out by Dutt in relation to the current socio-economic framework.

“The Englishmen introduced western education, built a strong and efficacious administration, framed wise laws and also established courts of justice.”

“India encountered famines during the years 1877, 1878, 1889, 1892, 1897 and 1900 which carried off more than 15 millions of people.”
Though British introduced such efficient institutions, India lost millions of lives in the famines. Famines further aggravate poverty and also undermine the confidence on the Government.

“Sources of wealth have been narrowed under British rule.”
Though they provided India with efficient enterprises, they thoroughly looted India of all its wealth. The British rule proved to be a lacuna in the growth of India which further accelerated and aggravated problems like high external debts, droughts even after Indian independence.

“India was a great manufacturing as well as an agricultural country in the 16th century.” “Indian loom supplied the markets of Asia and Europe.”
The manufacturing sector is increasingly dependent on the agricultural sector for raw materials. The demand for manufactured goods predominantly comes from the primary sector. Most of the populace was engaged in agricultural activities, and due to this they enjoyed a considerable ‘Demand capacity’, which provided them with the sufficient ‘purchasing power’ to consume manufactured products. This sort of a healthy relation between the 2 sectors is sustainable in the long run, rather than an economy which depends heavily on a single sector. Of late, the rhetoric has been to increase GDP growth rates, without mentioning the importance of contributions from Agriculture to these growth rates.

“East India Company and the British parliament, followed selfish commercial policy which discouraged Indian manufacturers.” “An excise duty was imposed on Indian cotton fabrics which disabled then to compete with Japan and China.”
The British ruined the manufacturing sector by imposing heavy duties on its exports thus making it costly in the global market. Owing to the fact that India had abundant natural resources, Agriculture could not be strangled.

“British made Indian people grow raw produce only.”
This enabled them to purchase cheap raw materials and had it processed in England which was later sold for exorbitant rates in India and elsewhere.

“Millions of Indian artisans lost their earnings.” “The invention of the power loom in Europe completed the decline of the Indian industries.”

Thus the Indian manufacturing sector was almost reduced to nothing by the end of 1947.

Advances in Economic History

A new branch of Economics, namely ‘Cliometrics’ which refers to the systematic use of economic theory and econometrics techniques to study economic history has helped economic historians in increasing the accuracy of their findings.

The Royal Swedish Academy of Sciences awarded the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel for 1993 jointly to Professor Robert W. Fogel, University of Chicago, USA, and Professor Douglass C. North, Washington University, St. Louis, USA, “for having renewed research in economic history by applying economic theory and quantiative methods in order to explain economic and institutional change.” [Nobelprize.org]

Further Links

1) The Cliometric society
2) Cliometrica (Journal of Historical Economics and Econometric History)