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Unit I- Indian Economy on the Eve of Independence

Colonial Rule in India and Its Policies


In this lesson, we will go through the various policies followed by the British during the colonial rule in India. In addition to this, we will also understand the impact of these policies on the Indian economy.


In your previous classes, you all must have read about the history of British rule in India. You all must be knowing that in the pre-British era, India was a flourishing and a prosperous economy. Agriculture was the main source of occupation for the majority of the Indian population. In fact, Indian agriculture was so prosperous that the French traveller, Bernier, described the Seventeenth Century Bengal as ''richer than Egypt''. The production of  food grains such as wheat, rice, etc. as well as that of poultry farming products was in abundance. Furthermore, activities such as sheep rearing, domestication of goats and geese, fishing, etc. were also very popular. Also, India was an exporter of cotton, silk, rice, sugar and butter. In addition to the flourishing agricultural sector, various manufacturing activities were also carried out in India. Indian handicrafts, metals, precious stone works, cotton and silk textile works were world famous. For example, Muslin, a fine variety of cotton textile, in Bengal enjoyed world wide fame and was very popular among foreign travellers. In all it can be said that India was a prosperous economy in every respects. 

However, with the advent of British rule, events took a turn. The British established the East India Company in the year 1757, and hence began the colonial rule in India. We all are familiar with what impact the British rule had on India in terms of political, social and cultural upheaval. In the subject of economics, we focus on the economic impact of the British rule. That is, we will study the various policies followed by the British and their impact on the various sectors (i.e. agriculture, industry, trade and infrastructure) of the Indian economy. Such a study is important because the structure of present day India has its roots in the colonial period. That is, to understand the present day Indian economy, it is first necessary to understand what India inherited from the colonial rule.

Colonial rule in India and its Policies

The advent of colonial rule of the British over India can be traced back to the establishment of the East India Company, after the Battle of Plassey, in the year 1757. With this slowly and gradually the British spread their dominance over India and by 1858, the entire India was under the spell of colonial rule. The British rule left a deep impact on the Indian economy. A point worth noting is that the colonial rule in India coincided with the process of industrialisation in Britain. Thus, the policies framed and followed by the British Government were mainly to compliment or to serve the industrialisation process in Britain. In this regard, the sole aim of the Colonial government was to reduce India to a mere supplier of raw material for their own thriving industrial base. The policies were concerned mainly with the fortification and advancement of their home country. They followed highly exploitative policies and were only concerned with their self economic interest, while the interest of the Indian economy were completely ignored. Such policies left a deep impact on the Indian economy. Thereby, the structure of Indian economy changed completely.

The following diagram depicts the major policies that were adopted by the Colonial Government.

The following is a brief discussion of some of the major policies followed by the Colonial government and their impact. 

1. Transforming agriculture sector as a mere supplier of raw material: The British forced the production of only those agricultural items that could serve as raw material for the products of the British industries. For example, they enforced the production of jute and indigo instead of food grains. Such a policy adversely affected the Indian agriculture sector. Indians who earlier were self-sustained in the production of food grains, now suffered on account of their shortage. In addition to the agriculture sector, this policy also affected the manufacturing sector. In return of the exports of the raw material, Britain supplied India with its own machine-made finished products. These fine British products provided a stiff competition to the Indian handloom and traditional products in terms of quality. As a result, the handloom and traditional products lost out to the machine made British products. Thus, this policy left the small manufacturing units and the handicrafts sector in a ruined state.

2. Land settlement system: In the agriculture sector, the system of land settlement, in the form of Zamindari System was introduced. This system was introduced by Lord Cornwallis in Bengal in 1793. Under this system, the Zamindars (or, the landlords) were under an obligation to pay a fixed sum of revenue to the British Government. However, the Zamindars fulfilled their obligation to pay the rent to the British Government by collecting huge rent form the peasants. They collected the profits and rent from the peasants or the cultivators who cultivated on their farms and in turn paid the revenue collected to the British Government. Moreover, the Zamindars could raise the amount of revenue at any point of time at t...

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