Undergraduate Economist

Perspectives of an economics student

Indian Economic History:Part 1

Posted by Alex M Thomas on December 8th, 2006

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)

No Responses to “Indian Economic History:Part 1”

  1. mathew Says:

    But I guess we still have it to make it big..Just like Chinese have made it big in manufacturing recently..things can work out if we have the price competitiveness..

  2. abhishek Says:

    It’s interesting that famines are mentioned in the post-British period, although I believe that distribution problems were rampant even before they arrive. They may exacerbated the situation though, but without data from the pre-colonial period, my opinion is just that.

    Also, speaking of colonial rule and its economic effects, this paper might interest you – Indirect British Rule, State Formation, and Welfarism in Kerala, India, 1860-1957

    This was an eye opener to me. Let me know by email if you can’t access it and would like to read it. I have the pdf version.

  3. alexmthomas Says:


    In China the productive resources(infrastructure) is controlled by the Chinese Government. Their manufacturing is done cheap unlike in India, where most of the government expenditure is spent of paying salaries.

    Or like in the US, where goods for international trade are heavily subsidized, price competitiveness can be ensured.

  4. alexmthomas Says:


    You have put forward a very valid point. Yes, since studies on distribution were scanty before the colonial rule, it would be difficult to say for sure that famines occurred solely because of British rule, though i believe that there could certainly be a significant correlation between British rule and famines.

    Thanks for the article.

    I will try to get more information on pre-British period.

  5. Indian Economic History at Blogbharti Says:

    [...] Alex Thomas is planning to write a series of posts on the economic history of India 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. Posted by Krish [...]

  6. Indian Economic History: Part 2 « Undergraduate Economist Says:

    [...] Recent Comments Indian Economic History at Blogbharti on Indian Economic History:Part 1alexmthomas on Indian Economic History:Part 1alexmthomas on Indian Economic History:Part 1alexmthomas on HDR 2006 and Indiasreekanth on HDR 2006 and India [...]

  7. Jason Says:

    great article alex… especially for those like me who are lazy to look into our history books. i was always thankful to the british for railways and administration which i think would have never come otherwise. unfortunately it was too high a price to pay and now we have to struggle to get back into being a manufacturing power and compete with our next door neighbour!

  8. sreekanth Says:

    Hi Alex,

    It is true that the Englishmen introduced modern education in India. But it was designed in such a way that the British will continue to remain in power in our land. The purpose of education was to form a class of persons, Indian in blood and in colour, but English in tastes, in opinions and in morals and intellect. It was introduced so that we will never raise the question of independence. A person can control over another man only if the latter thinks that the former is far superior to him. This was the logic that was used by the British as well. In their system they portrayed India as a poor nation with many social evils and practices. And they spoke volumes about the superiority of Europeans over us as well as other third world countries. There may be a few exceptions but to a great extent the British succeeded. They recruited these people in civil services and other govt posts and used them as tools to implement their vicious plans.
    So I don’t think it is right to say that British introduced modern education and efficient administration in the country.Let me know ur thoughts on this.Hey one more request,can u pls tell me how can i create a blog just like urs…I have posted some article in my web site “www.sreekanthkp.wordpress.com,can u pls check and tell me how can i create a blog like urs… Really cool one.!!! Good place 2 google for Eco and other stuff..
    Happy Christmas ALEX!!!


  9. alexmthomas Says:

    Well Sreekanth,
    The phrases in italics are from RC Dutt an Economic Historian, as mentioned in the references.

    But, it was the British who introduced or implanted western thought in the Indian minds. Legal institutions, parliamentary proceedings etc are carried on based on the British way.

    What you said about them controlling Indians through their education system is right. They were able to influnce indian mind sets easily thorugh their education system. But it also widened the horizons on the Indians who managed to get such high class education then. Albeit the percentage of such educated people were very miniscule.

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