The Imperial Priorities and the Indian Economy; Drain of Wealth; International Trade; Capital | CUET PG Economics | Notes

Background & Origin

• The Battle of Plassey (June 23, 1757) was a watershed moment in British India’s economic history.
• Following the war, the British began to intervene in the country’s economic policies.
• The East India Company’s policies and the corrupt practices of its officials caused a severe jolt to the country’s trade and policies.
• By the end of the 18th century, British rule had been established in large parts of the country, and the British desired India to be a profitable market for British goods.
• Britain destroyed India’s medieval economic structure and laid the groundwork for the modern economy.
• During their reign in India, they implemented a number of economic policies that had a significant impact on Indian society.

Difference between British Approach & Previous Foreign Conquests:

• The British conquest was unique among all previous foreign conquests.
• Previous conquerors had deposed Indian political powers but made no fundamental changes to the country’s economic structure; they had gradually become a part of Indian life, both political and economic.
• The peasant, the artisan, and the trader had continued to live their previous lives. The basic economic pattern of the self-sufficient village economy had been maintained.
• A change in rulers had merely meant a change in the personnel of those who appropriated the surplus of the peasants.
• The British conquerors, on the other hand, were a completely different storey. They completely upended India’s traditional economic structure. Furthermore, they never became a part of Indian life.
• They were always foreigners in the country, exploiting Indian resources and carrying away India’s wealth as a form of tribute.
• The consequences of subordinating the Indian economy to the interests of British trade and industry were numerous and diverse.

Phases of Economic Exploitation of India by British

Commercial Capitalism (1600-1800)

The first phase – Commercial Capitalism was clearly an age of supremacy for the merchants. The geographical explorations and new colonies had opened vast opportunities for profits. The capital accumulated by the merchant class from trade profit was termed merchant capital. This period is often described as the period of Monopoly Trade and Direct Appropriation.

• Commercial capitalism can be defined as a type of economic and political system which was essentially based on the concepts of capital, value, labour, and capitalization.
• Commercial capitalism provided the initial push for capitalism. Merchants began to become entrepreneurs in order to meet market demands by hiring wage labourers and by exploiting existing craft guilds.

• Commercial capitalism can be understood as the period between feudalism and industrial capitalism in Indian economic history.
• The period therefore will have elements of both its predecessor era and the descendant era, which is elements of feudalism as well as capitalism. Production of goods was usually done in the producers’ houses, rather than in the factories or any sort of production units.
• Manufacturing was done with modest tools rather than full-scale equipment. And in most of the cases, these factors of production were owned by the workers themselves.
• Production happened at a much smaller scale than in factories as access to factors of production was limited.
• The merchant entrepreneur controlled the entire production process.
• Profit motive was the primary, if not the sole, driving force of production.
• Demand for labour increased with the merchants’ increasing desire for profit and thus more workers were hired, who shifted from agriculture to industry.
• The final product as well as the entire profit belonged to the capitalist. The labourers were part of the system for meagre financial advances.

East India Company as a Trading Corporation (1600 – 1757):

• To catch the trade in the east, the British East India Company was established as a corporation in 1600.
• From 1600 to 1757 it remained a trading company, its main objective was to maximize its profit by exchanging items of textile and spices with precious metals like gold and silver from Europe.
• East India company did not interfere in the manner, trade was domestically made in India, and all it cared about was the profits from the sale of Indian goods abroad.
• The majority of East India company’s profit came from selling these goods so it consistently increased the market for Indian goods in Britain as well as other countries.
• As a result export of Indian goods increased and so did its production.
• Indian goods were good in quality and always in demand in Europe. British manufacturers did not like this, so they pressured the government to save their domestic market from Indian goods.
• Laws were passed in Britain as well and other European countries to check the use and inflow of Indian goods, especially textile products.
• These steps could not check the demand and popularity of Indian goods substantially until the middle of the 18th century when the English textile industry began to develop on the basis of new technology.

• During this time, no fundamental changes were made to the administrative system, transport and communication, agricultural or industrial production processes, forms of business management, or economic organisation.
• The traditional Indian civilisation, it’s religions, laws, caste system, family structure, and so on, were not regarded as impediments to colonial exploitation.
• No reforms were introduced in education, culture, or social organisation.
• Reforms were introduced in military organisation and technology, which native rulers also implemented in their armed forces.
• Changes were also made at the top of the revenue collection structure to make it more efficient and smooth.
• The British East India Company’s primary function during this time period was to buy spices, cotton, and silk from India and sell them at huge profits to the large market these goods enjoyed in Britain.
• This meant that large amounts of bullion would flow out of the United Kingdom and into India to pay for these commodities.

• The British East India Company was established as a corporation in 1600 and remained till 1757 as a trading company with the sole objective of maximizing its profit.
• This profit motive led to the expansion of the market for Indian goods in Britain as well as other countries. As a result export of Indian goods increased and so did its production.
• The growth of industrial capitalism in turn led to the growth of large towns and trade centres.
• During this period, there was a large-scale drain of wealth from India, which accounted for 2-3% of Britain’s national income at the time. This wealth played a significant role in financing Britain’s industrial revolution.
• The Company’s monopoly and exploitation ruined the indigenous weavers, artisans and craftsmen at this point. They were compelled to produce for the Company due to economical constraints.