The New Horizon

A new world explored with a rational view

The Economy of British India – with Angus Maddison

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Angus Maddison is a world-renowned economic historian who is famous for his work on estimating the past GDPs of modern economies by different measures. I won’t go much details into his original work, but the pieces he wrote about Indian subcontinent are worth-reading. In this post, I will try to delve into his assessment of British rule in India (read the Mughal one also). Just to remind you, I am an Indian and Angus Maddison is a British national – so a difference in narratives (bias?) could be present in my write-up.

The Elitist British

The biggest change the British made in the social structure was to replace the warlord aristocracy by an efficient bureaucracy and army. In the first generation, British tried to Westernize India – introduced English education, tried out a few Social efforts and tried to modernize infrastructure. But soon they changed their course. Having failed to Westernize India, the British established themselves as a separate ruling  caste. They did not inter-marry, their kids grew up in separate schools and they socialized with separate clubs where “native” population was absent. Maddison compares -

“The British ruled India in much the same way as the Roman consuls had ruled in Africa 2,000 years earlier, and were very conscious of the Roman paradigm.

One of the positive sides of the whole thing was that the British never tried to settle down in India and remained low in number. This resulted in low taxation but Maddison described that it benefited the middle class and land-lords but not the bottom-of-the-pyramid peasants.

“There were only 31,000 British in India in 1805 … In 1911, there were 164,000 British … In 1931, there were 168,000. … The British had inherited the Moghul tax system which provided a land revenue equal to 15 per cent of national income, but by the end of the colonial period land tax was only 1 per cent of national income and the total tax burden was only 6 per cent. … Most of the benefits of the lower fiscal burden were felt by landlords, and were not passed on to the mass of the population. In urban areas new classes emerged  under British rule, i.e. industrial capitalists and a new bourgeoisie of bureaucrats, lawyers, doctors, teachers and journalists whose social position was due to education and training rather than heredity. In the princely states, the remnants of the Moghul aristocracy continued their extravagances – large palaces, harems, hordes of retainers, miniature armies, ceremonial elephants, tiger hunts, and stables full of Rolls Royces.”

The System of Exploitation

The main aim of British exploitation was to remit money to Britain. Again, as per Maddison, there were two phases of it. The British East India company had nothing but a short-term-profit-maker attitude while the British Kingdom had a long-term-rent-seeking approach. For example, Robert Clive, the East India Company General took quarter of a million pounds for himself as well as a jagir worth £27,000 a year. (worth mention comment from Maddison – British did not pillage on the scale of Nadir Shah, who probably took as much from India in one year as the East India Company did in the twenty years following the battle of Plassey.)

Comparatively, later on, the remittances became more smooth and systematic -

“the Viceroy received £25,000 a year, and governors £10,000. The starting salary in the engineering service was £420 a year or about sixty times the average income of the Indian labour force … Under the rule of the East India Company, official transfers to the UK rose gradually until they reached about £3.5 million in 18566, the year before the mutiny. In addition, there were private remittances … By the 1930s these home charges (i.e. remittances) were in the range of £40 to £50 million a year …  (also) About a third of the private profit remittances should therefore be treated as the profits of colonialism. “

Moreover, the Govt of India, which always ran fiscal surplus over the British Kingdom, ran into debts due to spurious reasons. Further, during the World Wars, Govt of India “gifted” (joke!!?) millions of pounds from its reserves to the British Govt. Maddison describes -

“In spite of its constant favourable balance of trade, India acquired substantial debts. By 1939 foreign assets in India amounted to $2.8 billion, of which about $1.5 billion was government bonded debt … (during World Wars) there were two ‘voluntary’ war gifts to the UK amounting to £150 million ($730 million). India also contributed one-and-a-quarter million troops, which were financed from the Indian budget.”

 Where Maddison differs

Maddison differs quite a bit on the topic of Industry. He countered arguments of R.C. Dutt, R Palme Dutt and Nehru on de-industrialization (i.e. the decline of the old handicraft industry without the compensating advance of modern industry) of India with his set of facts. He accepted the facts that the Mughals did have a large industrial base and with British rule and policies it died. But added an important quote -

“Oversimplified explanations, which exaggerate the role of British commercial policy and ignore the role of changes in demand and technology, have been very common and have had some adverse impact on post-independence economic policy”

Maddison argued that the Mogul Indian industry were to produce luxury goods for aristocrats. But after British rule begun, the higher echelons of Indian society were flipped upside down. The British officers and native “copycat” Zaminders had little attraction on the traditional Indian handicrafts. Instead they developed taste of British merchandise. Furthermore, with social changes in Europe, there were a decline in demand of handicrafts overall (not only Indian but also other European ones as well).  Along with that, cheap and better quality textile from Britain occupied Indian market. Maddison agreed that the above incidents probably threw a lot of Indians out of job but he adds that the per-capita textile consumption doubled due to cheap British imports. He explains -

“the displacement effect on hand-loom weavers would have been smaller than at first appears. The hand-loom weavers who produced a third of output in 1940 would have been producing two-thirds if there had been no increase in per capita consumption.”

But he, in the end, agreed that India was the net loser on textile industry due to long term colonial effects -

“In time, India built up her own textile manufacturing industry which displaced British imports. India could probably have copied Lancashire’s technology more quickly if she had been allowed to impose a protective tariff in the way that was done in the USA and France in the first few decades of the nineteenth century, but the British imposed a policy of free trade. British imports entered India duty free, and when a small tariff was required for revenue purposes Lancashire pressure led to the imposition of a corresponding excise duty on Indian products to prevent them gaining a competitive advantage.  … If India had been politically independent, her tax structure would probably have been different. In the 1880s, Indian customs revenues were only 2.2 per cent of the trade turnover, i.e. the lowest ratio in any country. In Brazil, by contrast, import duties at that period were 21 per cent of trade turnover.”

So the fundamental issue was on the “free-trade” without preparedness but not the British policies.

In fact Maddison threw light into a few different aspects of Indian industries. Britain used India as their Asian export Hub and that resulted in Indian industrial gain.

“By the time of independence, large-scale factory industry in India employed less than 3 million people as compared with 12 1/4 million in small-scale industry and handicrafts, and a labour force of 160 million.56 This may appear meagre, but India’s per capita industrial output at independence was higher than elsewhere in Asia outside Japan, and more than half of India’s exports were manufactures.”

So, even though Indian industry was small, it was better off most of its Asian counterparts. However, the industry relied on mostly British skilled workers to fill in the upper ranks and that (along with protective policies) led to a demise of Indian industries post-Independence.

Conclusion

Overall, as per Maddison, British urban economy was better off the Moghul one. It was more productive, modern and focused on  entrepreneurship. On the other hand, the condition of villages worsened because of “extractive” Zaminders, population increase and reduced per-capita land availability. The book overall is a fascinating read and I will probably write up another post to follow up on my evaluations and criticisms of Angus Maddison.

The primary resource - Class Structure and Economic Growth: India & Pakistan since the Moghuls (1971) by Angus Maddison.

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Written by Diganta

February 7, 2013 at 12:40 am

One Response

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  1. [...] In short, both Mughal and British empire were significantly “elitist” and “extractive“, i.e. from power to money – everything was in the hands of a few. Contrary to the widespread belief in India, the common mass lived a little above the sustainability level and were hit by periodic natural calamity and crop-failures. The system or the economy in general was built to grind the common people into de-facto slavery. In this blog-post, I will focus on the Mughal rule (read the British one also). [...]


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