Indian Economic History: Part 2

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.

Lagaan

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.

Conclusion

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.

References

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


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)

Special Economic Zones (SEZ)

This post’is based on an article titled ‘Special Economic Zones: Revisiting the Policy Debate‘ which came in the ‘Economic and Political Weekly‘ authored by Aradhna Aggarwal.

 

 

The discontents against the SEZs are

 

1) This will bring about a significant revenue loss to the government. This will result in a kind of ‘disguised industry’ just as ‘disguised unemployment’. There will not be adequate production quid pro quo of the investments undertaken.

 


 

2) This will not only ruin various societies of their livelihood, but will also contribute to escalating inequalities and poverty. Moreover, relief and rehabilitation is to be provided by the SEZ developer. How far this will be successful is questionable.

 

 

3) This not only affects the people living in the proximity but also the agricultural sector as a whole. Of late, there has not been much growth in agriculture. This, like the author posits, will have serious implication for food security.

 

4) This will exacerbate the income and wealth inequalities. Moreover, since the public does not have access to the proceeding of SEZ’s, it will be difficult to ensure if the remaining 65% area is being used for productive purposes. [For that matter ensuring the 35% will prove difficult]

 

‘The trend is already seen in the initial approvals. The share of the four most industrialised states (TN, Karnataka, Gujarat and
Maharashtra) in total approvals is 49.5 per cent. Andhra Pradesh, Kerala and Haryana account for another 31.1 per cent of total approvals. Thus seven states account for 80.6 per cent of approvals. Their share of in-principle approvals is 63.8 per cent. On the other hand, industrially backward states of
Bihar, north-east and J and K do not have a single approval.‘

 

Thus not only do these SEZ’s worsen the lives of significant number of people, but also contribute to widening regional disparities and that too all at a cost to the government and people.

[Since a reader had requested me to discuss about SEZ’s, I thought of writing this post; though it is late.]

The Economics of the Environment

Of late, hues and cries are being heard in relation to the Environment. A crisis is impending. The Environment plays an important role in every economy. The recent HDR 2006 stresses on ‘Climate Crisis’.

Developments, a magazine produced by the Department for International Development (DFID) brings out some alarming statistics to show how ‘climate change’ threatens the world’s poor.

1) 97% of all deaths from natural disasters are in poor countries.
2) Longer rainy seasons have already led to increased malaria in parts of Rwanda and Tanzania.
3) Over 3 billion people in the Middle East and the Indian sub-continent could be facing acute shortages of water-affecting productivity and jobs.
4) Climate change brings the risk of increases in serious diseases such as malaria, dengue, yellow fever and polio.
5) A temperature rise of 2-3.5 degree Celsius would reduce farmers’ incomes by between 9 and 25%.
6) The area of the world stricken by drought has doubled between 1970 and the early 2000s.
7) There are over a billion people living without access to clean, safe water and 2.6 billion people have nowhere to go to the toilet.

These numbers prove that the ecosystem has been seriously affected by various kinds of pollution. This also warrants the need for generating energy using environmental-friendly methods.

India and the Environment

Studies conducted by WWF, available exclusively with CNN-IBN reveal that the Gangotri glacier is receding at an alarming average rate of 23 meters every year. [Iyer 2006] Glaciers are considered to be indicators of Global Warming.

Orissa enjoys unrivalled natural resources and have proved attractive to industrial giants. It has the highest overall poverty ratio in the country, with 48% living below the poverty line; its level of infectious diseases and malnutrition is alarming; it is particularly prone to natural disasters, such as cyclones and floods, says Prodeepta Das in his article ‘Counting the cost’ in Developments.

India on Tuesday became part of a seven-member international consortium to launch a multi-billion dollar experimental fusion reactor called ITER. The aim of the research reactor is to create fusion technologies that could emulate the power of the sun, that is, to develop a source of limitless, clean energy. [Naravane 2006]

It is of utmost importance that India strives to undertake research in resource economics so as to develop processes which will prove to be environment friendly. Jonathon Porritt, in his article in Developments titled ‘Capitalism for the poor” posits that ‘The end of cheap oil means the end of easy economic growth.’ Thus it is important that nations start finding alternative avenues to harness energy.

‘Green Tax‘: The state of Andhra Pradesh is introducing ‘green tax’ from 27th of November. This will be levied on vehicles which have been in use for 15 years and above. The revenue from this would be used for pollution control activities. This is a very beneficial tax which needs to be introduced in the whole of India.

Environmental protection efforts

The 1997 Kyoto Protocol expects it’s signatories to limit or reduce their greenhouse gas emissions. This protocol is yet to be ratified by many of the ‘major polluting’ nations.

The film ‘An Inconvenient Truth‘ directed by Davis Guggenheim and featuring Al Gore portrays the effects of global warming and its related hazards.

Many multinational and transnational companies are involved in such environmental protection. The effects of such activities are yet to be seen.

Concepts in Environmental Economics

Environmental economics is concerned with the impact of the economy on the environment, the significance of the environment to the economy, and the appropriate way of regulating economic activity so that balance is achieved among environmental, economic and other social goals. [Kolstad 1999]

Pigovian tax:
Early in the twentieth century the English economist Arthur C. Pigou argued for the imposition of taxes on generators of pollution. Since the social cost of pollution is in excess of the private cost to the polluter, the government should intervene with a tax, making pollution more costly to the polluter. If the pollution is more costly to produce, the polluter will produce less pollution. This tax has come to be called a Pigovian fee or Pigovian tax. [Ibid]

Other concepts like Coase theorem (Ronald H. Coase, Nobel winner of 1991), Ratchet effect are also present. The ratchet effect occurs when the regulator has incomplete knowledge of the firms’ costs and the two must repeatedly interact. [Ibid]

Conclusions

Thus it is indeed in the interest of everyone to protect the environment. Planting trees, abstaining from burning plastic, reducing travel by vehicles whenever possible are some of the things we could do to reduce pollution. Environmental hazards have a significant impact on the economy and in particular those of the poor countries. Though most of the pollution is done by the advanced countries, it is the ‘other countries’ which mostly bear the brunt.

Resources on Environmental economics

1) Environmental Economics (Blog)
2) Association of Environmental and Resource Economists (AERE)
3) Economist’s view (Blog)

Further Links

1) Creative Taxing Can Save the Environment”

2) STERN REVIEW: The Economics of Climate Change