Economic Deindustrialisation of India

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The Economic Deindustrialisation of India refers a period of reduction in industrial based activities within the Indian economy from 1757 to 1947.

The deindustrialisation of India started when the Indian economy was colonoised under the British Empire. The Indian Economy was ruled under the British East Indian Company Rule from 1757 to 1858. This ruling period mainly involved British protectionist policies, restricting sales of Indian goods and services within Britain while exposing Indian markets to British goods and services, without tariffs and quotas.

By the 19th century, the British empire had overtaken the Indian economy as the world's largest textile manufacturer.

From 1858, the Indian economy was ruled directly under the British Imperial Rule, also known as the Rule under the British Raj. India continued to be ruled directly under the British until the end of the deindustrialisation period in 1947.

Economy of India Prior to Deindustrialisation[edit]

Diagram of the Mughal Empire

The Mughal Economy is well known for the building of the Mughal Road system, establishing the Rupee as a standardised currency, and the unification of the country. [1] Prior to deindustrialisation, India was one of the largest economies in the world, accounting for approximately one quarter of the global economy. Mughal India is considered to be one of the richest periods among early modern Islamic cultures.[2] The Indian economy specialised in industrialisation and manufacturing, accounting for at least one quarter of the world's manufacturing output before the 18th century.[3]

Under the Mughal Empire, agricultural production had increased particularly food crops such as barley, rice and wheat and other non-food crops such as opium and cotton. By the middle of the 17th century, India had begun to grow large amounts of foreign crops including maize and tobacco. [4]

Economy of India During Deindustrialisation[edit]

Company Rule (1757-1858)[edit]

The Company Rule in India refers to areas in the Indian subcontinent which were under the rule of British East Indian Company. The East Indian Company began its rule over the Indian subcontinent starting with the Battle of Plessey, which ultimately led to the vanquishing of the Bengal Subah and the founding of the Bengal Presidency in 1765, one of the largest subdivisions of British India. [5]

An East Indian Company Merchant Ship used during the Company Rule for transport of cargo and labourers.

Capital amassed from Bengal following the Battle of Plessey assisted in investment in textile manufacturing during textile manufacture during the Industrial Revolution [6], increasing the wealth of the British [7] and ultimately contributing to deindustrialisation in Bengal. Furthermore, under Company rule, large Indian markets were exposed to British goods which were sold in India without any forms of protection while local Indian producers were heavily taxed. Protectionist policies were set up by the British empire to restrict the sale of Indian good and services overseas although raw materials used in textile manufacturing such as cotton were imported to Britain factories and worked.[8] These manufactured textiles were resold by the British in India and eventually led to the British Industrial Revolution, resulting in Britain overtaking India as the largest cotton textile manufacturer in the world by the 19th century.[9] Economic policies implemented by Britain allowed for a monopoly over India's large market and cotton resources and turned India into a captive market for Britain.[10]

Following the annexation of Oudh under British rule in 1956, all of the Indian subcontinent up to the Himalayas and most of Burma was ruled by the Company or local rulers which were allied with the Company at the tie. [11] During the Company rule period, the British East Indian Company had established four main headquarters across the Indian subcontinent. The major British territories across the Indian subcontinent included the Bengal Presidency, Bombay Presidency, Madras Presidency and the North-Western Provinces. [12]

The Company rule and the expansion of the British East India Company continued up until the Indian Rebellion of 1857. Ultimately, the Company rule ended with the Government of India Act 1858 following the events of the Indian Rebellion of 1857[4], although the British East India Company was formally dissolved by Act of Parliament in 1874.[11]

Rule under the British Raj (1858-1947)[edit]

The rule of the Indian economy under the British Raj refers to the period of the British's direct imperial rule over India from 1858 to 1947, which mainly arose due to revolt against the Company rule by Indians. This marked the formal conquest of India by the British. [11]

An early railway tram used to transport sugar during 1898.

Under rule of the British Raj, the Indian economy was in a state of stagflation and further deindustrialisation while the British economy went through the Industrial Revolution. [13] Several economic policies implemented by the British Raj also caused a severe decrease in Indian handicraft (and handiloom) sectors of the economy, particularly resulting in a large decrease in demand for employees, goods and services. [14] Although the Raj did not provide capital to the British economy, due to Britain's declining position in the steel making industry in comparison to the US and Germany, the Raj had steel mills set up in India. [15] The Tata Iron and Steel Company (TISCO) first operated in Bihar in 1908 and later became the largest and leading steel producer in India in 1945. [16]

Large amounts of investments by the private and public British investors contributed to a revamped railway system in India, mainly being used for economic growth and military use. This led to the creation of the fourth largest railway system in the world. [17] At first however, the initial use of the railway system was by private British companies. In 1837, the first train used on the railway system for freight transport ran from Red Hills to Chintadripet bridge in Madras.[18] In 1853, the railway began to be used for passenger travel services from Bombay to Thane, eventually expanding throughout most of the Indian subcontinent. During the First World War, the trains were used to transport troops and grain to other countries such as Britain and South Africa, although by the end of the war, the railway system was largely deteriorated. [19]

During the Great Depression, the Indian economy was not significantly impacted and the government was mainly focused on the shipping of gold to Britain. [20] The most significant economic impact on the Indian economy was deflation, which directly impacted the debt of villagers, and overseas trading of jute in Benghal, a key trading element through the 1920s which had significantly decline during the early 1930s. Furthermore, declining prices of jute and other food crops severely impacted large scale farmers in India. In contrast, sugar became a largely traded crop and a successful industry in the early 1930s. [21]


India finally became its own independent nation on 15th August 1947, free from the rule of the British Raj. [22]

India had undergone socialist reforms from the 1950s to 1990s. Prior to economic liberalisation, India experienced low rates of annual economic growth known as the "Nehruvian Socialist rate of growth" and low rates of per capita income growth. [23]

Photo of Jawaharlal Nehru, the first prime minister of India following the end of the British Raj's rule, and his father Motilal Nehru, an activist for Indian independence and a lawyer.

Numerous steel plants were set up in the 1950s by prime minister Nehru under the belief that India had needed to maximise steel production in order for the economy to succeed. This led to the formation of Hindustan Steel Limited (HSL), a government owned company and the establishment of three steel plants throughout the India during the 1950s. [24]

In 1991, the Indian economy underwent economic liberalisation. Through which, India transitioned to a more service and market based sector, with particular emphasis on expanding foreign and private investment within India. Furthermore, in response to deindustrialisation, liberalisation included reductions in import tariffs and taxes, as well as ending many Public Monopolies.[25] Majority of the changes were implemented as a condition for a $500 million loan by the IMF and World Bank to bail out India's government in December 1991. [26]

By the end of the 20th century, India had transitioned towards a free-market economy, through which there was a major decline of state control over India's economy and increased financial liberalisation. [27]

Economic Data[edit]

Prior to deindustrialisation, the Indian economy accounted for roughly 25% of the global economy. [28] Economic data collected by the OECD shows that growth during the Mughal Empire's reign was more than twice faster than it was around five hundred years prior to the Mughal era.[29] Under the British Raj rule, from 1880 to 1920, the Indian economy's GDP growth rate and population growth rate increased at approximately 1%. [30]

Following deindustrialisation, India's share of the global economy had dropped to approximately 4% in the 1950s.[31]

India's annual growth rate remained approximately around 3.5% prior to economic liberalisation. Per capita income growth had averaged around 1.3% per year. [23]

India's GDP growth rate slowly increased to 7% in the 2018-19 period. [32]

During 2018, India became the fastest emerging economy in the world. India is predicted to return as one of the three largest economies in the world by 2034. [32]

By 2025, it is expected that the Indian working age population will account for at least one quarter of the world economy's working age population. [33]

By 2035, the five largest cities in India are expected to have economies similar in size to middle income economies. [33]


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