Economy of India under Company rule
In the remnant of the Mughal revenue system existing in pre-1765 Bengal, zamindars, or "land holders," collected revenue on behalf of the Mughal emperor, whose representative, or diwan supervised their activities. In this system, the assortment of rights associated with land were not possessed by a "land owner," but rather shared by the several parties with stake in the land, including the peasant cultivator, the zamindar, and the state. The zamindar served as an intermediary who procured economic rent from the cultivator, and after withholding a percentage for his own expenses, made available the rest, as revenue to the state. Under the Mughal system, the land itself belonged to the state and not to the zamindar, who could transfer only his right to collect rent. On being awarded the diwani or overlordship of Bengal following the Battle of Buxar in 1764, the East India Company found itself short of trained administrators, especially those familiar with local custom and law; tax collection was consequently farmed out. This uncertain foray into land taxation by the Company, may have gravely worsened the impact of a famine that struck Bengal in 1769–70 in which between seven and ten million people—or between a quarter and third of the presidency's population—may have died. However, the company provided little relief either through reduced taxation or by relief efforts, and the economic and cultural impact of the famine was felt decades later, even becoming, a century later, the subject of Bankim Chandra Chatterjee's novel Anandamath.
In 1772, under Warren Hastings, the East India Company took over revenue collection directly in the Bengal Presidency (then Bengal and Bihar), establishing a Board of Revenue with offices in Calcutta and Patna, and moving the existing Mughal revenue records from Murshidabad to Calcutta. In 1773, after Oudh ceded the tributary state of Benaras, the revenue collection system was extended to the territory with a Company Resident in charge. The following year—with a view to preventing corruption—Company district collectors, who were then responsible for revenue collection for an entire district, were replaced with provincial councils at Patna, Murshidabad and Calcutta and with Indian collectors working within each district. The title, "collector," reflected "the centrality of land revenue collection to government in India: it was the government's primary function and it moulded the institutions and patterns of administration."
The Company inherited a revenue collection system from the Mughals in which the heaviest proportion of the tax burden fell on the cultivators, with one-third of the production reserved for imperial entitlement; this pre-colonial system became the Company revenue policy's baseline. There was vast variation across India in the methods by which the revenues were collected; with this complication in mind, a Committee of Circuit toured the districts of expanded Bengal presidency in order to make a five-year settlement, consisting of five-yearly inspections and temporary tax farming. In their overall approach to revenue policy, Company officials were guided by two goals: preserving as much as possible the balance of rights and obligations that were traditionally claimed by the farmers who cultivated the land and the various intermediaries who collected tax on the state's behalf and who reserved a cut for themselves and identifying those sectors of the rural economy that would maximize both revenue and security. Although their first revenue settlement turned out to be essentially the same as the more informal previous Mughal one, the Company had created a foundation for the growth of both information and bureaucracy.
In 1793, the new Governor-General, Lord Cornwallis, promulgated the permanent settlement of land revenues in the presidency, the first socio-economic regulation in colonial India. It was named permanent because it fixed the land tax in perpetuity in return for landed property rights for zamindars; it simultaneously defined the nature of land ownership in the presidency and gave individuals and families separate property rights in occupied land. Since the revenue was fixed in perpetuity, it was fixed at a high level, which in Bengal amounted to £3 million at 1789–90 prices. According to one estimate, this was 20% higher than the revenue demand before 1757. Over the next century, partly as a result of land surveys, court rulings and property sales, the change was given practical dimension. An influence on the development of this revenue policy were economic theories which regarded agriculture as the engine of economic development and consequently stressed the fixing of revenue demands in order to encourage growth. The expectation behind the permanent settlement was that knowledge of a fixed government demand would encourage the zamindars to increase both their average outcrop and the land under cultivation, since they would be able to retain the profits from the increased output; in addition, it was envisaged that land would become a marketable form of property that could be purchased, sold or mortgaged. A feature of this economic rationale was the additional expectation that the zamindars, recognizing their own best interest, would not make unreasonable demands on the peasantry.
However, these expectations were not realised in practice and in many regions of Bengal, the peasants bore the brunt of the increased demand, there being little protection for their traditional rights in the new legislation. Forced labor of the peasants by the zamindars became more prevalent as cash crops were cultivated to meet the Company revenue demands. Although commercialized cultivation was not new to the region, it had now penetrated deeper into village society and made it more vulnerable to market forces. The zamindars themselves were often unable to meet the increased demands that the Company had placed on them; consequently, many defaulted, and by one estimate, up to one-third of their lands were auctioned during the first three decades following the permanent settlement. The new owners were often Brahmin and Kayastha employees of the Company who had a good grasp of the new system, and in many cases, had prospered under it.
Since the zamindars were never able to undertake costly improvements to the land envisaged under the Permanent Settlement, some of which required the removal of the existing farmers, they soon became rentiers who lived off the rent from their tenant farmers. In many areas, especially northern Bengal, they had to increasingly share the revenue with intermediate tenure holders, called Jotedar, who supervised farming in the villages. Consequently, unlike the contemporaneous Enclosure movement in Britain, agriculture in Bengal remained the province of the subsistence farming of innumerable small paddy fields.
The zamindari system was one of two principal revenue settlements undertaken by the Company in India. In southern India, Thomas Munro, who would later become Governor of Madras, promoted the ryotwari system, in which the government settled land-revenue directly with the peasant farmers, or ryots. This was, in part, a consequence of the turmoil of the Anglo-Mysore Wars, which had prevented the emergence of a class of large landowners; in addition, Munro and others felt that ryotwari was closer to traditional practice in the region and ideologically more progressive, allowing the benefits of Company rule to reach the lowest levels of rural society. At the heart of the ryotwari system was a particular theory of economic rent—and based on David Ricardo's Law of Rent—promoted by utilitarian James Mill who formulated the Indian revenue policy between 1819 and 1830. "He believed that the government was the ultimate lord of the soil and should not renounce its right to 'rent', i.e. the profit left over on richer soil when wages and other working expenses had been settled." Another keystone of the new system of temporary settlements was the classification of agricultural fields according to soil type and produce, with average rent rates fixed for the period of the settlement. According to Mill, taxation of land rent would promote efficient agriculture and simultaneously prevent the emergence of a "parasitic landlord class." Mill advocated ryotwari settlements which consisted of government measurement and assessment of each plot (valid for 20 or 30 years) and subsequent taxation which was dependent on the fertility of the soil. The taxed amount was nine-tenths of the "rent" in the early 19th century and gradually fell afterwards. However, in spite of the appeal of the ryotwari system's abstract principles, class hierarchies in southern Indian villages had not entirely disappeared—for example village headmen continued to hold sway—and peasant cultivators sometimes came to experience revenue demands they could not meet. In the 1850s, a scandal erupted when it was discovered that some Indian revenue agents of the Company were using torture to meet the Company's revenue demands.
Land revenue settlements constituted a major administrative activity of the various governments in India under Company rule. In all areas other than the Bengal Presidency, land settlement work involved a continually repetitive process of surveying and measuring plots, assessing their quality, and recording landed rights, and constituted a large proportion of the work of Indian Civil Service officers working for the government. After the Company lost its trading rights, it became the single most important source of government revenue, roughly half of overall revenue in the middle of the 19th century; even so, between the years 1814 and 1859, the government of India ran debts in 33 years. With expanded dominion, even during non-deficit years, there was just enough money to pay the salaries of a threadbare administration, a skeleton police force, and the army.
After gaining the right to collect revenue in Bengal in 1765, the East India Company largely ceased importing gold and silver, which it had hitherto used to pay for goods shipped back to Britain. In addition, as under Mughal rule, land revenue collected in the Bengal Presidency helped finance the Company's wars in other parts of India. Consequently, in the period 1760–1800, Bengal's money supply was greatly diminished; furthermore, the closing of some local mints and close supervision of the rest, the fixing of exchange rates, and the standardization of coinage, paradoxically, added to the economic downturn. During the period, 1780–1860, India changed from being an exporter of processed goods for which it received payment in bullion, to being an exporter of raw materials and a buyer of manufactured goods. More specifically, in the 1750s, mostly fine cotton and silk was exported from India to markets in Europe, Asia, and Africa; by the second quarter of the 19th century, raw materials, which chiefly consisted of raw cotton, opium, and indigo, accounted for most of India's exports. Also, from the late 18th century British cotton mill industry began to lobby the government to both tax Indian imports and allow them access to markets in India. Starting in the 1830s, British textiles began to appear in—and soon to inundate—the Indian markets, with the value of the textile imports growing from £5.2 million in 1850 to £18.4 million in 1896. The American Civil War too would have a major impact on India's cotton economy: with the outbreak of the war, American cotton was no longer available to British manufacturers; consequently, demand for Indian cotton soared, and the prices soon quadrupled. This led many farmers in India to switch to cultivating cotton as a quick cash crop; however, with the end of the war in 1865, the demand plummeted again, creating another downturn in the agricultural economy.
At this time, the East India Company's trade with China began to grow as well. In the early 19th century demand for Chinese tea had greatly increased in Britain; since the money supply in India was restricted and the Company was indisposed to shipping bullion from Britain, it decided upon opium, which had a large underground market in China and which was grown in many parts of India, as the most profitable form of payment. However, since the Chinese authorities had banned the importation and consumption of opium, the Company engaged them in the First Opium War, and at its conclusion, under the Treaty of Nanjing, gained access to five Chinese ports, Guangzhou, Xiamen, Fuzhou, Shanghai, and Ningbo; in addition, Hong Kong was ceded to the British Crown. Towards the end of the second quarter of the 19th century, opium export constituted 40% of India's exports.
"Mellor Mill" in Marple, Greater Manchester, England, was constructed in 1790–93 for manufacturing muslin cloth.
Opium Godown (Storehouse) in Patna, Bihar (c. 1814). Patna was the centre of the Company opium industry.
Another major, though erratic, export item was indigo dye, which was extracted from natural indigo, and which came to be grown in Bengal and northern Bihar. In late 17th and early 18th century Europe, blue apparel was favoured as a fashion, and blue uniforms were common in the military; consequently, the demand for the dye was high. In 1788, the East India Company offered advances to ten British planters to grow indigo; however, since the new (landed) property rights defined in the Permanent Settlement, didn't allow them, as Europeans, to buy agricultural land, they had to in turn offer cash advances to local peasants, and sometimes coerce them, to grow the crop. The European demand for the dye, however, proved to be unstable, and both creditors and cultivators bore the risk of the market crashes in 1827 and 1847. The peasant discontent in Bengal eventually led to the Indigo rebellion in 1859–60 and to the end of indigo production there. In Bihar, however, indigo production continued well into the 20th century; the centre of indigo production there, Champaran district, became the staging ground, in 1917, for Mohandas Karamchand Gandhi's first experiment in non-violent resistance against the British Raj.
- Metcalf & Metcalf 2006, p. 20
- Metcalf & Metcalf 2006, p. 78
- Peers 2006, p. 47, Metcalf & Metcalf 2006, p. 78
- Peers 2006, p. 47
- Robb 2004, pp. 126–129
- Brown 1994, p. 55
- Peers 2006, pp. 45–47
- Peers 2006, pp. 45–47, Robb 2004, pp. 126–129
- Bandyopadhyay 2004, p. 82
- Marshall 1987, pp. 141–144
- Robb 2004, p. 127
- Guha 1995
- Bose 1993
- Tomlinson 1993, p. 43
- Metcalf & Metcalf 2006, p. 79
- Roy 2000, pp. 37–42
- Brown 1994, p. 66
- Robb 2002, p. 128
- Peers 2006, p. 47, Brown 1994, p. 65
- Brown 1994, p. 67
- Mill & Wilson 1845, p. 539Jayapalan 2008, p. 207
- Robb 2004, pp. 131–134
- Peers 2006, pp. 48–49
- Farnie 1979, p. 33
- Misra 1999, p. 18
- Peers 2006, p. 49
- Washbrook 2001, p. 403
- Metcalf & Metcalf 2006, p. 76
- Bose & Jalal 2003, pp. 71–72
- Bandyopadhyay 2004, p. 125
- Bandyopadhyay 2004, p. 125, Bose & Jalal 2003, pp. 71–72
- Adams, John; West, Robert Craig (1979), "Money, Prices, and Economic Development in India, 1861–1895", Journal of Economic History, 39 (1): 55–68, doi:10.1017/S0022050700096297, JSTOR 2118910
- Appleyard, Dennis R. (2006), "The Terms of Trade between the United Kingdom and British India, 1858–1947", Economic Development and Cultural Change, 54: 635–654, doi:10.1086/500031
- Bannerjee, Abhijit; Iyer, Lakshmi (2005), "History, Institutions, and Economic Performance: The Legacy of Colonial Land Tenure Systems in India", American Economic Review, 95 (4): 1190–1213, doi:10.1257/0002828054825574, JSTOR 4132711
- Bayly, C. A. (1985), "State and Economy in India over Seven Hundred Years", The Economic History Review, New Series, 38 (4): 583–596, doi:10.1111/j.1468-0289.1985.tb00391.x, JSTOR 2597191
- Bayly, C. A. (2008), "Indigenous and Colonial Origins of Comparative Economic Development: The Case of Colonial India and Africa", World Bank Policy Research Working Paper, 4474
- Bose, Sugata; Jalal, Ayesha (2003), Modern South Asia: History, Culture, Political Economy, London and New York: Routledge, 2nd edition. Pp. xiii, 304, ISBN 0-415-30787-2.
- Bose, Sumit (1993), Peasant Labour and Colonial Capital: Rural Bengal since 1770 (New Cambridge History of India), Cambridge and London: Cambridge University Press..
- Broadberry, Stephen; Gupta, Bishnupriya (2007), Lancashire, India and shifting competitive advantage in cotton textiles, 1700–1850: the neglected role of factor prices
- Clingingsmith, David; Williamson, Jeffrey G. (2008), "Deindustrialization in 18th and 19th century India: Mughal decline, climate shocks and British industrial ascent", Explorations in Economic History, 45 (3): 209–234, doi:10.1016/j.eeh.2007.11.002
- Cuenca-Esteban, Javier (2007), "India's contribution to the British balance of payments, 1757–1812", Explorations in Economic History, 44 (1): 154–176, doi:10.1016/j.eeh.2005.10.007
- Collins, William J. (1999), "Labor Mobility, Market Integration, and Wage Convergence in Late 19th Century India", Explorations in Economic History, 36: 246–277, doi:10.1006/exeh.1999.0718
- Farnie, DA (1979), The English Cotton Industry and the World Market, 1815–1896, Oxford, UK: Oxford University Press. Pp. 414, ISBN 0-19-822478-8
- Ferguson, Niall; Schularick, Moritz (2006), "The Empire Effect: The Determinants of Country Risk in the First Age of Globalization, 1880–1913", Journal of Economic History, 66 (2): 283–312, doi:10.1017/S002205070600012X
- Ghose, Ajit Kumar (1982), "Food Supply and Starvation: A Study of Famines with Reference to the Indian Subcontinent", Oxford Economic Papers, New Series, 34 (2): 368–389
- Grada, Oscar O. (1997), "Markets and famines: A simple test with Indian data", Economic Letters, 57: 241–244, doi:10.1016/S0165-1765(97)00228-0
- Guha, R. (1995), A Rule of Property for Bengal: An Essay on the Idea of the Permanent Settlement, Durham, NC: Duke University Press, ISBN 0-521-59692-0
- Habib, Irfan (2007), Indian Economy 1858–1914, Aligarh: Aligarh Historians Society and New Delhi: Tulika Books. Pp. xii, 249., ISBN 81-89487-12-4
- Harnetty, Peter (July 1991), "'Deindustrialization' Revisited: The Handloom Weavers of the Central Provinces of India, c. 1800-1947", Modern Asian Studies, Cambridge University Press, 25 (3): 455–510, doi:10.1017/S0026749X00013901, JSTOR 312614
- Imperial Gazetteer of India vol. III (1907), The Indian Empire, Economic, Published under the authority of His Majesty's Secretary of State for India in Council, Oxford at the Clarendon Press. Pp. xxx, 1 map, 552.
- Jayapalan, N. (2008), Economic History of India (2 ed.), Atlantic Publishers & Distributors, p. 207, ISBN 9788126906970, retrieved 18 November 2009
- Kumar, Dharma; Raychaudhuri, Tapan; et al., eds. (1983), The Cambridge Economic History of India: c. 1757 – c. 1970, Cambridge and New York: Cambridge University Press. Pp. 1078, ISBN 0-521-22802-6
- McAlpin, Michelle B. (1979), "Dearth, Famine, and Risk: The Changing Impact of Crop Failures in Western India, 1870–1920", The Journal of Economic History, 39 (1): 143–157, doi:10.1017/S0022050700096352
- Metcalf, Barbara D.; Metcalf, Thomas R. (2006). A Concise History of Modern India. Cambridge University Press. ISBN 978-1-139-45887-0.
- Mill, James; Wilson, Horace (1845), The History of British India, J Madden, retrieved 15 March 2011
- Oldenburg, Philip (2007), ""India: Movement for Freedom"", Encarta Encyclopedia, archived from the original on 31 October 2009, retrieved 16 May 2014.
- Peers, Douglas M. (2006), India under Colonial Rule 1700–1885, Harlow and London: Pearson Longmans. Pp. xvi, 163, ISBN 058231738X.
- Ray, Rajat Kanta (1995), "Asian Capital in the Age of European Domination: The Rise of the Bazaar, 1800–1914", Modern Asian Studies, 29 (3): 449–554, doi:10.1017/S0026749X00013986
- Robb, Peter (2004), A History of India (Palgrave Essential Histories), Houndmills, Hampshire: Palgrave Macmillan. Pp. xiv, 344, ISBN 0-333-69129-6.
- Roy, Tirthankar (Summer 2002), "Economic History and Modern India: Redefining the Link", The Journal of Economic Perspectives, American Economic Association, 16 (3): 109–130, doi:10.1257/089533002760278749, JSTOR 3216953
- Roy, Tirthankar (2006), The Economic History of India 1857–1947, Second Edition, New Delhi: Oxford University Press. Pp. xvi, 385., ISBN 0-19-568430-3
- Roy, Tirthankar (2007), "Globalisation, factor prices, and poverty in colonial India", Australian Economic History Review, 47 (1): 73–94, doi:10.1111/j.1467-8446.2006.00197.x
- Roy, Tirthankar (2008), "Sardars, Jobbers, Kanganies: The Labour Contractor and Indian Economic History", Modern Asian Studies, 42: 971–998, doi:10.1017/S0026749X07003071
- Sen, A. K. (1982), Poverty and Famines: An Essay on Entitlement and Deprivation, Oxford: Clarendon Press. Pp. ix, 257, ISBN 0-19-828463-2
- Stein, Burton (2001), A History of India, New Delhi and Oxford: Oxford University Press. Pp. xiv, 432, ISBN 0-19-565446-3
- Studer, Roman (2008), "India and the Great Divergence: Assessing the Efficiency of Grain Markets in Eighteenth- and Nineteenth-Century India", Journal of Economic History, 68: 393–437, doi:10.1017/S0022050708000351
- Tomlinson, B. R. (1993), The Economy of Modern India, 1860–1970 (The New Cambridge History of India, III.3), Cambridge and London: Cambridge University Press., ISBN 0-521-58939-8
- Tomlinson, B. R. (2001), "Economics and Empire: The Periphery and the Imperial Economy", in Porter, Andrew, Oxford History of the British Empire: The Nineteenth Century, Oxford and New York: Oxford University Press, pp. 53–74, ISBN 0-19-924678-5
- Travers, T. R. (2004), "'The Real Value of the Lands': The Nawabs, the British and the Land Tax in Eighteenth-Century Bengal", Modern Asian Studies, 38 (3): 517–558, doi:10.1017/S0026749X03001148