British Economic Policies 

British Economic Policies: In the subject of Modern History of India, British economic policies were framed to integrate India into the global colonial economy for the benefit of Britain. Systems like Permanent Settlement, Ryotwari, and Mahalwari, along with free trade and commercialization of agriculture, led to deindustrialization, rural indebtedness, and widespread economic exploitation.

British Economic Policies 

Origin of Factory Legislation

• Demand for regulation came from:
  • Lancashire textile capitalists
• Reason:
  • Fear of competition from Indian industry using cheap labour
• First Factory Commission: – 
  • Appointed in 1875
• First Factory Act: – 
  • Passed in 1881

Indian Factory Act, 1881 – 

• Focused mainly on child labour (7–12 years).
• Provisions – 
  • Employment of children below 7 prohibited.
  • Maximum working hours:
    • 9 hours per day for children
  • Four holidays per month for children
  • Dangerous machinery to be fenced.

Indian Factory Act, 1891 – 

• Changes introduced:
  • Minimum age raised from 7 to 9 years
  • Maximum age raised from 12 to 14 years
  • Working hours for children reduced to 7 hours/day
  • Women’s working hours limited to 11 hours/day
  • Mandatory 1½ hour rest interval for women
  • Weekly holiday for all workers
• Working hours for men remained unregulated.

Plantation Labour Exploitation – 

• Factory laws did not apply to:
  • British-owned tea and coffee plantations
  • Labour conditions:
    • Extremely exploitative
    • Labour treated like slaves
  • Laws favoured planters:
    • Labour contract once signed could not be refused.
    • Breach of contract treated as criminal offence.
    • Planters could get labourers arrested.

Revenue Policies under British Rule

• Agriculture was the main occupation of rural India.
• The agrarian economy supported other sectors of the economy.
• After obtaining Diwani rights of Bengal in 1765, the British gained control over land revenue.
• British revenue policies:
  • Transformed the agrarian structure.
  • Introduced new land tenure systems.
  • Reorganised revenue administration.
• Main objective:
  • Maximum extraction of land revenue.
• Little concern for:
  • Welfare of cultivators.
  • Agricultural sustainability.

Revenue policies are as follows – 

Warren Hastings’ System (Izaredari / Farming System) –

• Bengal famine of 1769–70:
• Caused partly by rapacity and corruption of Company officials.
• Warren Hastings introduced the Izaredari (Farming) System to improve revenue collection.
• Main Features –
  • Land revenue collection rights were given to contractors (revenue farmers).
  • Contractors were selected through highest bidding.
  • Land was “farmed out” to the highest bidder.
  • Revenue settlement:
    • Initially for five years (quinquennial settlement).
  • Collection made annual in 1777.
• Consequences – 
  • Led to extortion and oppression of peasants because:
    • Contractors aimed solely at maximising profit.
    • Revenue demands exceeded the productive capacity of the land.
  • Zamindars were viewed as mere tax collectors, not landowners.
  • Traditional zamindars:
    • Discouraged from bidding.
    • Many hereditary zamindars were displaced.
  • Corruption reduced actual revenue reaching the government.
• Result:
  • Impoverishment of the countryside.
  • Decline in agriculture.
  • Reduction in trade commodities like silk and cotton.
• Expected revenue surplus failed to materialise.

Permanent Settlement (Zamindari System) –

Background –

• In 1776, Philip Francis proposed permanent settlement.
• Lord Cornwallis was appointed Governor-General with instructions to implement it.
• Committee formed:
  • Lord Cornwallis
  • Sir John Shore
  • James Grant
• Cornwallis believed:
  • Zamindars would act like English landlords.
  • Proprietary rights would encourage agricultural improvement.
• Revenue collection easier from zamindars than numerous cultivators.

Areas Covered –

• Covered about 19% of British Indian territory.
• Implemented in:
  • Bengal
  • Bihar
  • Orissa
  • Banaras (Varanasi)
  • Northern Madras
• Features of the Permanent Settlement –
• Zamindars were given proprietary (ownership) rights over land.
• 1790: Revenue settlement fixed for ten years.
• 1793: Settlement made permanent.
• Land revenue:
  • Fixed and unchangeable.
  • Payable by zamindars to the Company.
• Zamindars collected revenue from:
  • Cultivators (ryots/raiyyats), who became tenants.
• Zamindars’ share:
  • One-tenth to one-eleventh of revenue.
• Rights of zamindars:
  • Sell, mortgage, or transfer land.
  • Land inheritable by heirs with rights and liabilities.

Sunset Clause (1794) –

• If revenue not paid by sunset on the due date:
  • Zamindari confiscated.
  • Auctioned by the government.
  • Ownership transferred to new buyer.
• Powers over Tenants –
  • Regulations of 1793, 1799, and 1812:
  • Empowered zamindars to seize tenants’ property for non-payment of rent.
  • No court permission required.

Shortcomings of Permanent Settlement (Zamindari System) –

• Revenue fixed at a very high rate.
• Zamindars had no margin for relief during Floods, Droughts and Natural calamities
• Growth of absentee landlordism:
  • Merchants, officials, and other zamindars bought confiscated lands.
• High revenue demand forced subdivision of estates into Patni taluqs.
• Land rented permanently to patnidars at fixed rent.
• Beginning of sub-infeudation.
  • Zamindars required to issue pattas (written agreements) to cultivators:
  • Rarely implemented.
  • Peasants remained vulnerable to exploitation.
• Zamindars:
  • Made no effort to improve agriculture.
  • Focused solely on rent extraction.
• From government’s perspective:
  • Revenue was permanently fixed.
  • Could not be increased to meet:
    • Rising administrative costs.
    • Military expenditure and wars.

Ryotwari System

Origin and Introduction

• Devised by Thomas Munro and Captain Alexander Read (1792).
• Introduced in Baramahal region of Madras Presidency.
• Officially introduced by Munro as Governor of Madras in 1820.
• In Bombay after a rent survey this system was implemented by E. Goldsmith, Captain Davidson and Captain Wignet.

Objective – 

• Direct collection from ryots (cultivators).
• No intermediaries → higher revenue to the Company.

Madras Torture Commission (1855) –

• Exposed:
  • Torture
  • Bribery
  • Corruption by subordinate officials.
• Reforms after 1855:
  • Scientific land surveys conducted.
  • Fresh revenue assessments made.
• Revenue fixed at:
  • 50% of net produce.
• Settlement period:
  • 30 years.
• Reformed system introduced in 1864.
• Results:
  • Agricultural prosperity.
  • Expansion of cultivation.
• Interrupted by famines of 1865–66 and 1876–78

Ryotwari System in Bombay Presidency –

• Introduced in Gujarat (1813–14).
• Extended after British conquest of Peshwa’s territory (1818).
• Supervised by Mountstuart Elphinstone (Governor, 1819–27).
• Survey conducted during 1824–28.
• State demand fixed at 55% of net produce.
• Problems:
  • Faulty surveys.
  • Erroneous estimates.
  • Over-assessment.
• Result:
  • Harassment of peasants.
  • Desertion of fields.
  • Large areas left fallow.

Reforms (1836 onwards)

• Improved by Wingate and Goldsmith.
• Assessment based on:
  • Soil quality.
  • Location of land.
• Covered most of Deccan by 1865.
• Revenue reduced.
• Devalued land regained saleable value.

Areas Covered under Ryotwari System – 

• Madras Presidency
• Bombay Presidency
• Berar
• East Bengal
• Parts of Assam
• Coorg
• Intellectual Influence – 
  • Developed during rise of Utilitarian ideas.
  • Influenced by David Ricardo’s theory of rent.

Features of Ryotwari System – 

• Ownership and occupancy rights vested in ryots.
• No limit on land ownership.
• Ryots could Sell Transfer Mortgage Sublet land
• Revenue paid directly to the Company.
• Tax rate:
  • 45%–55% of estimated produce.
• Revenue:
  • Not fixed.
  • Could be increased.
• Settlement:
  • Temporary.
  • Periodically revised.
• Ryots theoretically free to choose land.
• Barren government land allowed for cultivation.
• Revenue from such land shared with government.
• Land confiscated if revenue unpaid.

Shortcomings of Ryotwari System – 

• Chronic over-assessment of revenue.
• Inflexible and coercive collection methods.
• Use of torture to extract tax.
• Widespread corruption.
• Non-cultivating landlords registered as owners.
• Actual cultivators reduced to:
  • Tenants
  • Servants
  • Bonded labourers
• High tax reduced land value.
• Decline in land market demand.

Mahalwari System – 

Origin – 

• Proposed by Holt Mackenzie in 1819.
• Formalised by Regulation VII of 1822.
• Applied in Northern India.

Reforms under Bentinck – 

• Regulation of 1833 simplified assessment.
• Supervised by Merttins Bird (Father of Land Settlements in North India).
• Comprehensive land survey:
  • Cultivated and fallow lands marked.
• Initial state share:
  • 66% of rental value.
• Settlement period:
  • 30 years.
  • Dalhousie’s Modification (1855)
• State demand reduced to:
  • 50% of rental value.

Nature of the Mahalwari System – 

• Called modified zamindari system.
• Village headman acted as intermediary.
• No proprietary rights like zamindars.
• Different regional names:
  • Mauzawar – North-Western Provinces
  • Malguzari – Central Provinces
• Dual nature:
  • Settlement with village community.
  • Settlement with individual landholders.

Features of Mahalwari System – 

• Mahal (village/group of villages) as unit of assessment.
• Revenue based on mahal’s produce.
• Village community considered owner.
• Individual cultivators had occupancy rights.
• Tax paid individually by cultivators.
• Collection responsibility:
  • Lambardar (village headman).
• Revenue share:
  • 66% under Bentinck.
  • Reduced to 50% later.
• Average rent concept introduced.
• Periodic revision of revenue.

Shortcomings of Mahalwari System – 

• Recording of all land rights was impractical.
• Assessments often inaccurate and arbitrary.
• Manipulation by collectors to raise revenue.
• High scope for corruption.
• Village communities weakened.
• Exorbitant revenue demands.
• Transfer of land to:
  • Moneylenders
  • Merchants
• Cultivators displaced or reduced to tenants.
• Large-scale impoverishment in North India.
• Peasant resentment contributed to Revolt of 1857.
• High cost of collection:
  • Sometimes exceeded revenue collected.

Overall Impact of the British Land Revenue Systems – 

General Failure of Revenue Systems – 

• All British land revenue settlements proved disastrous for both farmers and zamindars.
• Revenue demands were excessively high and rigid, ignoring agricultural conditions.

Impact on Zamindars – 

• Many zamindars failed to pay the high fixed revenue.
• Their lands were Confiscated and Auctioned by the government
• Zamindars often lost hereditary control over land.

Impact on Peasants – 

• High land revenue rates led to:
  • Chronic indebtedness
  • Lifelong debt cycles
• Peasants were forced to borrow from Moneylenders and Middlemen
• Cultivators did not benefit from the new land systems.

Changes in Land Ownership –

• Revenue settlements created a new form of private ownership of land.
• Cultivators lost customary rights over land.

Commercialisation and Alienation of Land – 

• Land became Saleable , Mortgageable and Transferable
• These measures were designed mainly to:
  • Safeguard government revenue, not peasant welfare.
• Land alienation increased rapidly.

Breakdown of Village Community – 

• Traditional village unity was destroyed.
• The stability and continuity of Indian village life was severely shaken.

Decline of Village Artisans – 

• Village artisans lost traditional patronage.
• Many became:
  • Jobless.
  • Landless agricultural labourers.

Emergence of Absentee Landlordism – 

• Subletting of revenue collection rights became common.
• Landowners lived away from villages.
• Resulted in:
  • Neglect of agriculture
  • Increased exploitation of cultivators

Commercialisation of Agriculture – 

• High revenue demands forced peasants to:
  • Grow cash crops
  • Produce for the market rather than subsistence
• Agriculture became market-oriented, increasing:
  • Risk
  • Vulnerability to famines and price fluctuations

Economic Impact of British Rule in India – 

Decline in India’s Share of World Economy

• At the beginning of the 18th century, India accounted for:
  • About 23% of the world economy.
• By the time of independence:
  • India’s share declined to about 3%.

Deindustrialisation: Ruin of Artisans and Handicraftsmen 

• One-Way Free Trade Policy

• The Charter Act of 1813 introduced:
  • One-way free trade in favour of British citizens.
• Consequences:
  • Cheap, machine-made British goods flooded Indian markets.
  • Indian products faced increasing difficulty entering European markets.
  • Tariffs of nearly 80% were imposed on Indian textiles.
  • After 1820, European markets were virtually closed to Indian exports.
• India shifted:
  • From a net exporter to a net importer.
• Railways enabled:
  • British goods to reach even the remotest parts of India.

Contemporary Views on Deindustrialisation –

• William Bentinck stated:
  • “The misery hardly finds a parallel in the history of commerce; the bones of cotton weavers are bleaching the plains of north India.”
• D.H. Buchanan observed:
  • “The armour of the isolated self-sufficient village was pierced by the steel rail, and its life blood ebbed away.”

Ruralisation of India –

• Decline of Urban Centres
• Deindustrialisation led to Decline of many towns and cities.

Pressure on Agriculture –

• Migration to villages increased pressure on land.
• Agriculture became:
  • Overburdened.

Impoverishment of the Peasantry –

• The colonial government aimed at Maximisation of land revenue.

Failure to Improve Agriculture

• The government:
  • Spent very little on improving land productivity.
• Zamindars:
  • Had enhanced powers.
  • Focused on maximising revenue extraction.
  • Had no incentive to invest in agriculture.

Triple Burden on Peasantry

• Peasants suffered under:
  • Government revenue demands
  • Zamindars
  • Moneylenders

Famine and Poverty

• Famines became a regular feature of Indian life
• Famines were caused not only by food scarcity but by:
  • Colonial economic exploitation
  • Widespread poverty
• Between 1850 and 1900:
  • About 2.8 crore people died due to famines
  • Rajni Palme Dutt had given evidences that even during the days of famine food grain were being exported. 

Scholarly Assessment

• Shashi Tharoor observes:
  • India was reduced from a great manufacturing nation to:
    • An exporter of raw materials and foodstuffs.
  • Major exports included:
    • Raw cotton, jute, silk, coal, opium, rice, spices, tea.
  • India’s share in world manufacturing exports fell:
    • From 27% to 2% under British rule.

Commercialisation of Indian Agriculture

Aspect	Details
Period	Became prominent in the latter half of the 19th century
Nature of Change	Shift from subsistence agriculture to commercial agriculture
Market Orientation	Crops grown for national and international markets
Major Commercial Crops	Cotton, Jute, Groundnut, Oilseeds, Sugarcane, Tobacco
Other Commercial Produce	Increased cultivation of spices, condiments, fruits, and vegetables
Most Commercialised Sector	Plantation agriculture
Plantation Crops	Tea, Coffee, Rubber, Indigo
Ownership Pattern	Plantation sector largely owned by Europeans
Purpose of Production	Produce mainly meant for export

Destruction of Industry and Late Development of Modern Industry –

Deindustrialisation of India

• Indian industry was systematically destroyed under British rule.
• Indian textiles faced severe decline due to unfair British policies.
• Destruction of Indian Ship-Building Industry
  • India had a flourishing ship-building industry before British rule.
  • Major centres:
  • estern Coast: Surat, Malabar
  • Eastern Coast: Bengal, Masulipatnam

Restrictive British Laws –

• 1813 Law:
  • Ships below 350 tonnes were prohibited from sailing 
• 1814 Law
• :Indian-built ships were denied the status of ‘British-registered vessels’.
• Suppression of the Indian Steel Industry –
  • The British prevented the growth of the Indian steel industry.
  • Forced to produce high-grade steel meant only for British use.
  • Not allowed to manufacture lower-grade steel demanded by the wider market.
  • Colonial conditions prevented the rise of an independent industrial bourgeoisie.
• Emergence of Modern Industries (Late Development)
• Important milestones:
• 1853:
  • First cotton textile mill in Bombay by Cowasjee Nanabhoy.
• 1855:
  • First jute mill at Rishra (Bengal)
• Indian-owned industries emerged:
• 19th century:
  • Cotton textiles, jute20th century: Sugar, cement, etc.

Economic Drain

• Dadabhai Naoroji‘Grand Old Man of India’ was the foremost economic critic.
  • Propounded the Drain of Wealth Theory in Poverty and UnBritish Rule in India.
• Economic drain = part of India’s national income taken to Britain without adequate returns.
• Major components:
  • Salaries and pensions of British civil and military officials
  • Interest on foreign loans taken by Indian government
  • Profits on foreign investments in India
  • Purchase of stores in Britain for Indian departments
  • Payments for shipping, banking, and insurance services
• Drain:
  • Retarded capital formation in India
  • Accelerated British economic growth
  • Re-entered India as finance capital, causing further drain
  • Reduced income and employment in India

Other Nationalist Economic Thinkers

• Justice M.G. Ranade
• R.C. Dutt – Economic History of India
• Gopal Krishna Gokhale
• G. Subramania Iyer
• Prithwishchandra Ray
• Core Argument of Nationalist Economists
• Colonialism transformed India into:
  • Supplier of raw materials and foodstuffs
  • Market for British manufactured goods
  • Field for British capital investment
• They advocated:
  • Ending economic subservience to Britain
  • Building an independent national economy
  • Development of modern indigenous industries

Critique of Railways

• Railways were not designed to serve India’s industrial needs.
• Railways led to:
  • Commercial revolution, not industrial revolution
• Net effects of railways:
  • Enabled foreign goods to outcompete Indian products
• G.V. Joshi remarked:
  • Railway expenditure was an Indian subsidy to British industries.
  • One-Way Free Trade and Tariff Policy

Effect of Economic Drain –

Drain Theory as Core Nationalist Critique

• Drain theory unified all nationalist economic arguments.
• In modern terms:
  • Around 8% of national product

Popular Understanding of Drain

• The concept of drain was:
  • Easily understood by Indian peasants
  • Matched their daily experience of exploitation.

Impact of One-Way Free Trade

• One-way free trade:
  • Destroyed Indian handicraft industries
  • Exposed them to unequal and unfair competition
• Indian industries faced premature competition with industrial Britain.

Stages of Colonialism in India 

• Marxist historians, especially Rajni Palme Dutt, identified three overlapping stages of colonialism.
• Each stage:
• Grew out of the previous one
• Did not completely replace earlier forms
• Had distinct dominant features causing qualitative change

First Stage:

• Colonialism of Merchant Capital (1757–1813)
  • (Mercantilism / Monopoly Trade and Direct Appropriation)
• Time Period
  • 1757–1813
  • Period of East India Company’s domination
• Main Objectives
  • Establish monopoly of trade with India against:
    • Other European traders
    • Indian merchants
• Direct appropriation of revenue through control of State power
• Economic Features
  • Large-scale drain of wealth from India
  • Drain constituted 2–3% of Britain’s national income
  • This drain helped finance Britain’s Industrial Revolution
• Trade Pattern
  • No large-scale import of British goods into India
  • Increase in export of Indian textiles and goods
  • Indian weavers:
    • Ruined by Company monopoly
    • Forced to produce at uneconomic rates

Second Stage:

• Colonialism of Free Trade (1813–1860s)
• Beginning
  • Started with Charter Act of 1813
  • Coincided with rise of British industrial capitalism
• Shift in British Interests
  • Industrial capitalists criticised East India Company
  • Colonial policy now served British industrial interests
  • India’s new role:
    • Market for British manufactured goods
    • supplier of raw materials and foodgrains
• Dominant Features
  • Integration of Indian economy with:
    • British economy
    • World capitalist system
• Free trade introduced
  • Import duties removed or reduced to nominal levels
• British Capital Entry
  • Free entry for British capital in:
    • Tea, coffee, indigo plantations
    • Trade and transport
• Mining and modern industries
• Active State support to British capitalists
• Trade Statistics
  • India absorbed:
  • 10–12% of British exports
  • Nearly 20% of British textile exports
  • Post-1850:
    • Large-scale import of railway equipment

Third Stage:

• Era of Foreign Capital and Imperialism (1860s onwards)
• Global Context
  • Began around 1860s
  • Changes in world economy:
    • Challenge to British industrial supremacy by Europe, USA, Japan
    • Rapid industrialisation using science and technology
• Pattern of Investment
  • Large British investments in:
    • Railways
    • Government loans
    • Trade
    • Plantations
    • Coal mining
    • Jute mills
    • Shipping and banking
    • Rule justified as:
      • Civilising mission
      • Moral duty of the British
• Popularly termed as “White Man’s Burden”

Home Charges:

• India Office Expenses:
  • Costs for the administration in London.
  • Salaries & Pensions:
  • Payments to British civil and military personnel in India.
• Public Debt Interest:
  • Interest on loans raised in Britain for Indian projects.
  • East India Company
• Dividends:
  • Payments to shareholders.
  • Military Costs:
  • Transporting British troops and purchasing military stores in England.
• Economic policies – 
• Dada Bhai Nauroji books – 
  • On the Commerce of India (1871 AD)
  • The Wants and Means of India (1876)
  • Poverty and Unbritish rule in India (1901)
  • Poverty of India
• Lala Lajpat Rai – England Debt to India’
• R.C. Dutt-
  • A History of Civilization in Ancient India
  • Economic History of India
  • Indians in the Victorian Age
  • The Great epics of ancient India 
  • Open Letters to Lord Curzon on Famines and Land Assessment in India’.
• Sir M. Visvesvaraya –
  • ‘Planned Economy in India
  • Our system works like a sponge which draws every good produce from the banks of the Ganges and squeezes it on the banks of the Thames.” – John Sullivan
  • Naoroji had described drain of wealth as ‘the evil of evils’ and regarded it as the major cause of poverty of India