Undergraduate Economist

Perspectives of an economics student

Indian Economic History: Part 2

Posted by Alex M Thomas on December 16th, 2006

The previous post on Indian Economy during the British period revealed one of the reasons for widespread penury in the country at the time of independence. This post is second in the series on Indian Economic History. A major reason for the presence of very wide inequalities of income and wealth concomitant to abject poverty was due to the Land Tax levied by the British Government.

On Land Tax

After the deterioration of the Indian manufacturing sector owing to policies framed by Britain, Agriculture was the sole source of national wealth.

The Land Tax levied was not only excessive by outrageous. In England the Land Tax rates were between 5% and 20% whereas in India, they levied exorbitant rates which were over 90% of the produce. This crippled the Indian Agriculture. This ensured that the cultivators got zilch from cultivation.

The main characteristics were

1) It was heavy as in the rates were too high.

     2) The rates were uncertain. The tax rates were changed very now and then. There was absolutely no transparency in the proceedings.

Moreover, this Land Tax differed from the principle of taxation which prevailed in all well administered countries.

In addition to all this, the revenue from Land Tax was never used for the betterment of the Indian populace. This left the cultivators permanently poor.


The movie portrays the large chunks of monies which were taken as tax from the Indian peasants. Life during the colonial rule was certainly hard for them. This was not caused by mismanagement but in fact it was maneuvered cleverly by the British.


The effects of the Land Tax were wide spread. They not only robbed the cultivators of their harvest but also discouraged them to cultivate. This had serious negative impact on production and productivity. Thus we know that, Colonial rule played a very important role in destroying agriculture and industry in India. This resulted in India being shunned from international trade as the products were no longer ‘price’ competitive.


1) The Economic History of India By R.C. Dutt

No Responses to “Indian Economic History: Part 2”

  1. bvn Says:

    What was their benefit in having high taxes here ? India being a primary source of their raw materials, why would they try to impede our agri sector ?

  2. paddy Says:

    i think India was the primary source of raw material , they got it even from other colonies. Agriculture was well developed in the 16th century so it would be difficult to get the produce at lower prices so they wanted to weaken the industry so that tehy could have the command .they had the power so why leave the oppertunity to increse their income. well or it could just be that they didnt want to think of it in long run , they wanted to exploit as much as possible and as soon as possible .
    btw thanx for the link to the text in the reference .

  3. Mohit Says:

    Only if the brits’ knew anything about the Laffer Curve (http://en.wikipedia.org/wiki/Laffer_curve)
    they could have bilked more money from us. But the benefits of this model(and that is if the supply-siders are correct) to India would have been higher productivity at lower unemployment levels.

  4. alexmthomas Says:


    They wanted wealth and it did not matter how they got it. Probably, they did not care about the long term effects. It sure stygmied the agricultural sector.[Like Paddy says]


    Being ignorant of the Laffer Curve did not matter because they imposed high taxes and they filled their coffers. I believe they would have used force.

  5. sreekanth Says:

    Hi Alex,
    one quick question …On wht basis one country issues the currency and how often it happens.Is it on the basis of Gold and USD that it posesses??

  6. justinas Says:

    interesting view to Indian economy.

    Its really high taxes when you look to numbers, but without context its very hard to decide, is it really high…

  7. alexmthomas Says:

    Yes, it is on the basis of gold and reserves like USD that a country issues currency. Earlier, the fill amount of the currency needed to be backed by gold. But of late, only a certain proportion of the total currency is required to be held in gold and other reserves.

    True. It is difficult to decide without knowing the historical context. But, the end of colonial rule left India dilapidated and shattered. Imposing such high taxes meant nothing but exploitation. The British wanted to accumulate more and more wealth and that they got from imposing such high taxes.

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