In this article we will discuss about Indo-British economic relations.
Competition for Commercial Ascendancy in India:
Relations between England and India originated mainly in commerce. The Indian products created a lucrative trade with Egypt, Greece and Rome —the markets which met the needs of whole of Europe. At that time India was not receiver, rather it was giver of all that what the humanity needed.
K.T. Paul has summarized this in the following words :
“The points of interest – is that in all those times, pre- Roman, Roman and Venetian, there was little or no contribution from the West to India, India taught or gave, receiving comparatively little in return. The contact was so to say entirely one sided; it was the contact of the West with India and not the contact of India with the West.”
Out of this trade there flourished a prosperous market in Europe and the merchants earned a lot. European nations, then also, bad made efforts to control the trade routes to India to establish their monopoly in trade with this country.
It was one of the bitterest bone of contention between the Roman Empire and the Arabs. The Roman Empire sent many naval expeditions to seize Aden from the Arabs and wrest the Indian trade out of their hands. If we go into the past, we will be surprised to know that this struggle was as fierce as in the eighteenth century between the British and all other European nations.
Rise of Islam and Halt to Trade with Europe:
The Roman ascendancy was successfully contested by the Arabs who emerged as the most powerful Islamic nation of the medieval times. They controlled old trade route via Egypt, Red Sea, Aden and the Indian Ocean.
The Europeans then started trading through Central Asia via Constantinople. However, Constantinople also fell to the Turkish in 1453. Entrenched in the crusades, the Islamic world would not allow the Christians to obtain their necessities and products from India and other eastern nations.
It compelled the European commercial houses to discover sea-routes still beyond the control of the Islam. This led to the emergence of various nations of Europe on the economic-political life of India. This resulted in a long drawn- out struggle between these nations.
European Struggle for Commerce in India:
After Aurangzeb annexed Golkunda and Bijapur in southern India, which had so far served as “breakwaters against the spread of the Maratha insurrection”, the Mughal Empire got entrenched in a prolonged confrontation with them.
This confrontation dislocated both civil and military administration. The European factories also came under heavy pressures. They utilized this excuse and opportunity to fortify their settlements on the eastern and western coasts, since as they argued, they were “convinced themselves, after much anxious discussion” that the success and comparative security of the Dutch, as formerly of the Portuguese, lay in their armed strength.
It was this accumulation of arms-strength which proved quite favourable to the British in the struggle for supremacy in Europe which got extended to their commercial enterprises in India which coincided with the struggle for supremacy in India also.
Struggle for Supremacy in Europe and India:
France and Holland were involved in a war in 1672 which continued upto 1713. It was this struggle among these two European nations which affected India first time in 1693. The Dutch captured Pondicherry, and driven out the French from their factories.
Though the settlement was returned to the French in 1699, but the French trade suffered heavily during the period of Dutch control. This skirmish established a point that the rival’s trade could be affected by seizing its settlement in India.
It was this example which prompted Dupleix, in 1748, to take sides in the struggle for power among the native rulers to bring them under French influence and drive out their enemies, including English, out of Indian trade.
This challenge was courageously taken over by Watson and Clive. In the three famous Carnatic Wars (1740-1765), the British defeated the French and also subjugated the native princes to their dictation. During this course they also established their hold over the Mughal Province of Bengal through two military transactions at Plassey (1757) and Buxar (1765).
Administration of Bengal, Bihar and Orissa was taken over from the Nawab by Warren Hastings in 1772 and inaugurated the era of British rule in India. By acquiring a territory on the Indian soil, the Company came into direct confrontation with the Indian contenders in the current power struggle.
The Company subdued all of them, and became the supreme political power of India by 1818. All the States and the people were subjected to Pax Britannica by suppressing their last attempt to win back independence in 1857.
The British continued to rule India-for next 90 years and transferred the power to Indians in 1947. The modern period (1757-1947) under study is the period of British role over India. In this period the Indo-British relations were those of the rulers and the ruled. It was a rule of Britain and all the rules and regulations had derived their legality from the British Government. However, the British maintained a facade of trustee” of the “uncivilized” people. (To them all the subject nations, including India, were inhabited by the uncivilized people). It is this facade which can have any sense in describing the Indo-British relations.
The British rule in India can be divided into two distinct parts. From 1772 (the year in which Hastings took over the government from the Nawab) to 1857, the country was ruled by the East India Company, under the Charter granted to it by the British Crown. After 1857, the Charter of the Company was terminated and India came under the direct control of the Crown. But it is a difference of legality, otherwise the power was always exercised by the same kind of British people.
The Government of India was first regulated under an Act of 1773 pissed by the British Parliament. This Act brought the administration of the Company under the direct control of the Crown. The Governor-General, Governors, other important executives, and the judges were to be nominated by the Crown. The Governor-General- in- Council could enact rules for the “law, order and good government” only with the approval of the Home Government.
The Crown also established a Supreme Court to which, in fact, the executive was Subordinated. In this way tae country was controlled indirectly by the Crown. Since the British Crown could act only o i the advice of the British Parliament, therefore, the Indian people were also ruled by the British Parliament and thereby were affected by the British party politics.
There were many reforms in the provisions of administrative framework, but the supremacy of the British Government continued to increase and the Government of India would have gone under the direct control of the Crown even if there would not have been any resurgence in 1857.
When the Company obtained political power, there emerged a great controversy in Britain. The conflicting interests of the political parties of Britain led to appointment of a Select Committee and Secret Committee by the British Parliament.
On the recommendations of these Committees the Parliament passed the famous Regulating Act (1773) Which introduced Parliamentary supervision over the Company Government of India. Consequently the governing machinery of the Company was Modified.
The Act provided that “Directors (of the Company in England) should lay before the Treasury i.e., Government) all correspondence from India dealing with the revenues; and before a Secretary of State everything dealing with civil or military administration.”
From 1781 onward they were also obliged to have concurrence of the Secretary of State to all the despatches sent to the Government of India. In this way, the Parliamentary supervision—in reality the control of the British Government—was established and India became a subject country of Britain.
Though the Company was given the privileges of appointing Governor General and his Council—the de facto rulers of India—they were subordinated to a Supreme Court of Justice consisting of a Chief Justice and three pusine judges. All the judges were appointed by the Crown and, therefore, this Court is also called King’s Court. In this way the executive in India was also subjected to British Crown through the dichotomy of judiciary. But as discussed under the Legal System in India, this system could not work smoothly.
Rather, it threatened the continuance of their rule in India itself. “It had neither given the State a definite control over the Company, nor the Directors a definite control over their servants, nor the Governor General a definite control over his Council, nor the Calcutta Presidency a definite control over Madras and Bombay.”
In other words, the Regulating Act had created a multiplicity of masters due to which the Indian people had to live under unknown, and unexpected tyranny.
The observation of P.E. Roberts on the execution of Nand Kumar, an important officer of Nawab Sirajudaullah and an accomplice of Clive in conspiring against the Government of the Nawab, who had earned the displeasure of the Governor General, Warren Hastings reveals the cruelty of this system.
He observes: “It casts the darkest and most sinister shadow over the reputation of the men who used him for their own purpose and then callously and contemptuously filing him to the wolves.”
This system came under severe criticism in British Parliament. Edmund Burke was the greatest critic of the British executive in India. It may, however, be noted here that he was not as much concerned about the oppressed Indians, as he was concerned about the “Naboobs” who would endanger the democracy in Britain.
This fact becomes clear from the Judicature Act of 1871 which removed the judicial control over the Company executive. The Regulating Act was amended by the Pitt’s India Act.
Pitt’s India Act:
The Pitt’s Act created “Commissioners for the affairs of India” known as the Board of Control over the Directors of the Company. The Board consisted of a Secretary of State, the Chancellor of the Exchequer and four Privy Councilors appointed by the British Crown.
They had access to all the papers except purely of commercial nature of the Company. The Board was also empowered to send secret or urgent orders to the executive in India. In this manner, the government of India went under the de facto control of this Board.
It was this Pitt’s Act which maintained the political relationship between India and Britain throughout the Company rule. There were further stipulations about the subordinate status of the country. The Charter Act of 1813 stressed upon “the undoubted sovereignty of the Crown” over the country.
In 1853, the Crown was given the authority to nominate “three” out of eighteen Directors of the Company; all future appointments- through competitive examinations—were to be made with the express approval of the Crown.
In this way these Acts had been gradually transferring the power and authority from the Company to the Crown. The abolition of the Company and the transfer of its powers of the Crown were inevitable even if the resurgence of 1857 would not have terminated that process in an abrupt manner.
Therefore, we can say that the British Government was responsible for all the acts of Indian Government which were in the British interests more than the welfare of the people of India.
It was only in Queen’s Proclamation of 1858 that there was an effort to assure the subject people in explicit terms. It is described as the Magna Carta of the Indian people. In that Proclamation, the Queen promised to respect the rights, dignity and honour of the native princes and to pay due regards to the ancient rights, usages and customs of India… and proclaimed a policy of justice, benevolence and religious toleration, enjoining the Government to “abstain from all interference with religious belief or worship” of the subjects.
The most important aspect of the Proclamation is considered that it declared all “of whatever race or creed, may be freely and impartially admitted to offices in our service, the duties of which they may be qualified, by their education, ability and integrity, duty to discharge”.
But the growing racial discrimination between Indian and the British the “trusteeship” of British Crown and as Russell, the Times Correspondent in India, reported, “the mutinees have produced too much hatred and ill-feeling between the two races to render any mere change of the rulers a remedy for the evils which effect India, of which those angry sentiments are the most serious exposition….Many years must elapse ere the evil passions excited by these disturbances expire; perhaps confidence will never be restored; and if so, our reign in India will be maintained at the cost of suffering which it is fearful to contemplate”.
Thereafter, the Crown assumed the direct control over India. An Act was enacted on 2 August 1858 which provided that “India shall be governed by, and in the name of, the Sovereign through one of the principal Secretaries of State, assisted by Council of fifteen members”.
The Governor General concurrently became the Viceroy of the Crown. The Crown’s rule, in fact, inaugurated the era of using India for the British imperial interests.
After 1958, the Secretary of State became the virtual ruler of India. The Act of 1869 reduced the power of his Council and term of the members to ten years “renewable at the pleasure of “the Secretary of State”. His powers were further strengthened with the opening of a telegraph line in between India and London in 1870.
Henceforth, the secretary of State exercised a far more effective control over the administration of India than was the case before, and the Viceroy really tended to be a mere “agent” of the Secretary of State.
It was at the same time the Secretary of State under whom the constitutional development took place which has been interpreted that the British Government was sincere in granting the self-government to Indians and they had been taking the steps in this direction since they took over the Government.
It is a question of a great reservation. We cannot go into details, but will refer how this development took place which will also analyze the future political relations between the British Government and India.
Movement for Revocation of Colonies:
From 1840s onward there were many staunch advocates of revoking the imperial rule and grant the colonies independence. It has created a confusion about the British policy towards the colonies; and many believe that the British were having liberal attitude towards the colonies.
This was not, however, the case. In fact all those who argued for the grant of independence to the colonies referred to those colonies which were settled by the British, such as Canada, South Africa, Rhodesia, Australia etc.
They had advocated separation of the colonies from the empire with the increasing ‘laissez faire’ approach; but there was no support to this move in colonies inhabited by non- European people.
Professor Goldwin Smith who did his best to establish himself as an anti-imperialist and spoke provocately, in case of India said that it:
“Stands on a footing of its own, apart from the other dependencies of our Empire. There we have not only placed ourselves in a position from which it is hard to retire, but taken upon us duties which we are bound for the present to perform. If we were to leave India we should leave it to anarchy”.
Though India was, in his opinion, not economically or militarily more “advantageous to Britain, it was a conquered territory, and it belonged to the conqueror country as ‘ Providence puts the stolen purse into the pocket of the thief “.
Following this line of thinking, Goldwin Smith opined that “the principal of Colonial Emancipation does not apply to India.” Similarly Disraeli was though averse to continue control over “colonial dead weights i.e., those colonies by settlement where Britain had given up the right to govern themselves, but he advocated that ‘ power and influence should be exercised in Asia”.
All these people did not favour withdrawal from lands like India and Ceylon since it would, they argued would lead to anarchy and “would cease at once to export their goods to us and to consume our manufactures. Rather they resented that instead of holding “India for the acquisition of prestige and trade, Britain decided that we are to govern India in the interest of the people of Hindustan.”
For them non-European was not fit for self-government or elimination of imperial control, but, what British Governor of New Zealand pointed out, they need enlightenment which could render them “a valuable consumer of British manufactured goods” and ”dependencies formed, as Dilke argued a nursery of statesmen and of warriors.”
It was this view which was strengthened by the Act of 1892 which declared that “Nothing in this Act shall detract from or diminish the powers of the Governor-General-in-Council at meetings, for the purpose of making laws and regulations.”
The reforms were introduced to combat the increasing discontentment among the Indian mass. Therefore Pradhan observed: “The Indian Council Act of 1892 was an attempt at compromise between the official view of the Councils as pocket legislatures and the educated Indian view of them as embryo Parliaments.”
It were the violent movements which compelled the British to present a liberal approach rather than granting self-government to India even within the British Commonwealth of Nations. While introducing the Act of 1909, the Secretary of State for India, Lord Morley unequivocally declared: “If I were attempting to set up a Parliamentary system in India or if it could be said that reforms led directly or necessarily up to the establishment of Parliamentary system in India, 1, for one, would have nothing at all to do with it.”
Change in the British Approach:
It was only the First World War which forced the British to issue a statement which would reconciliate the growing discontentment among the Indian nationalists. Montague, Secretary of state for India, declared on 20th August 1917 that, The policy of His Majesty’s Government with which the Government of India are in complete accord, is that of the increasing association of Indians in every branch of administration with a view to the progressive realization of responsible Government in India as an integral part of the British Empire. The progress in this policy can only be achieved by successive stages.
The British Government of India, on whom the responsibility lies for their welfare and advancement of Indian people must be the judges of the time and measure of each advance and they must be guided by the co-operation received from those upon whom new opportunities of service will thus be conferred and by the extent to which it found that confidence could be reposed in their sense of responsibility.”
But when the war was over, the British introduced not only diarchy which was to create obstacles in the economic advancement, but it also introduced communal franchise which finally led to the strengthening of two-nation theory and establishment of Pakistan.
Along-with it, “Instructions were issued from London that henceforth the Reforms were to be worked with a view of not how much but how little, self-Government for India they could be made to yield.”
It disappointed not only the radicals but also the liberals who had been considering the British rule as providential. They started non-cooperation movement in which almost paralyzed the working of the governmental machinery In India, while this movement was going. Labour Party won the elections and formed its Government in1929.
It was the first declaration by the British Prime Minister, Macdonald who said at a conference “I hope that within a period of months rather than years, there will be another Dominion added to the Commonwealth of Nations, a Dominion of another race, a Dominion which will find respect as an equal within the Commonwealth, I refer to India.”
It was in these changed circumstances that the British administrators started re-interpreting the past declarations and motives of the British Government.
Governor General of India, Lord Irwin announced on 31st October 1921 that:
“I am authorized on behalf of His Majesty’s Government to state clearly that in their judgment it is implicit in the declaration of 1917 that the natural issue of India’s constitutional progress, as there contemplated is the attainment of Dominion Status”.
Not contented with these wild promises, the Congress Party started civil disobedience movement in 1930. Forced by the successful movement, the Government enacted the Act of 1935. In this Act, the British recognized federal structure, a reference to which has already been made.
Professor Keith therefore, rightly observes: It is difficult to deny the justification of the contention in India that federation was largely evoked by the desire to evade the issue of extending responsible government to tie Central Government of British India.
The proposed federation was likely to fail due to the assertion of the controlling power of the Governor- General backed by the Conservative elements of the states and of British India. Therefore, the federal structure was so envisaged as to make any real advance impossible and no loophole was left for the representatives of the Indian people to interfere with or modify the system of British controlled administration. The nationalist movement in India, however, had got that momentum which could not be diffused by such tactics. Above all, the world was overtaken by the Second World War.
This war broke the British hegemony: and after War, the people of British again voted Labour Party to Power. Therefore, the Labour Party accelerated the transfer of Power to Indians but only by dividing the country on religious grounds and giving “in legacy perpetual conflict between the two brothers.”
In this way, we can summarise that the Indo-British relations were dictated by the British Government as an imperial power. The policy was not for the welfare of the people of India, but for the people of Britain. But the British had created those institutions, through which the transfer of power was inevitable even if it would have come at a very late stage. It was that “vehicle which after started moving could not be stopped.”
The foreign policy of India was dictated by the British imperial interests in the international sphere. Therefore, the Indian foreign policy was nothing but British foreign policy. There was no cognizance to the Indian interests.
It is one of the strongest case for the colonial status of the country in the modern times. Therefore, India was dragged in the wars which were waged for British imperial interests; and the resources of the country were utilized to meet those ends.
Britain Versus Russia:
The conflict between Britain and Russia is the best example of this nature of foreign policy. After the European powers had been busy in expanding their “spheres of influence” over the “uncivilized world”, there emerged a hostility between Britain and other European powers.
We have seen how the country was subjected to Britain in that struggle for supremacy in the European continent. After 1815, there was a cordial relationship between the European countries and Britain.
However, the Russian expansion towards the Black. Sea and the Central Asian regions caused a great anxiety among the British statesmen. In order to combat these moves, British Government forced upon Indian resources the burden of war with Afghanistan.
The threat of the Russian expansion in Central Asia was, however, met by an agreement of 1844 which accepted that Bukhara, Khiva and Samarqand would be kept “as a neutral zone between the two empires in order to preserve them from a dangerous contact”.
The Crimean War (1854) again brought the two Powers against each other and the cordial relationship came to an end. The British Government summoned Indian troops for use in the Crimean War. (It was one of the cause of resentment among the Indian soldiers which contributed towards the resurgence of 1857).
Thereafter the British Government suffered until Anglo-Russian Entente (1907) was concluded. Until then the British Government suffered from the fear that the Russian “bear” humiliated in the Crimean War would be restless and endanger British Indian Empire, it was in the fit of this Rusao-phobia that the Indian resources were used time and again to secure British imperial interests to thwart Russian expansion in Central Asia.
In 1864, the Russian again started marching into Central Asia. By 1868, they captured Samarqand; in 1873 Khiva was also annexed. In this way the “neutral zone” had passed under the Russian control. It created an alarm to the British. They sought keeping the Amir of Afghanistan by sending arms and money from India.
This subsidy was continuously paid by the Viceroys of India to secure “British interests.” (It was suspended only for a brief period of Gladstone Ministry who did not view the Russian expansion in Central Asia as a threat to the safety of British Empire in India).
But by 1874, the situation underwent a change. Disraeli, one of the staunch imperialists, became the Prime Minister of Britain and Lord Salisbury became the Secretary of State for India. In 1877, Russia defeated Turkey and imposed upon her the Treaty of San- Stefano. (It was at this juncture that the Indian troops were stationed in the Mediterranean—cost of which was met out of revenues of India).
By this treaty, Russia had completely changed the balance of power in the Dardanellas and the Black Sea —a grave risk to the British Empire dreaded by the British Government.
It created a great anxiety for British Government. Therefore, Disraeli Government accepted the forward policy; accordingly Indian Government was asked to complete that objective. As a result of this forward policy India had to bear a war against Afghanistan.
Similarly Burma, East Africa were also annexed by deploying Indian troops. These wars brought no benefit to Indian people. India was thrown into two World Wars in spite of opposition of the Indian people. There is no such study so far, but the expenditure incurred on the wars waged for British imperial expansions was beyond imagination.
These British imperial interests were met by devising a staffing policy.
Sir John Lawrence, Viceroy of India explained this policy in the letter to the Secretary of State, 17 August 1867:
“The chief objection to a change [in the manner of recruitment to the Indian Civil Service] is that of policy. We conquered India mainly by force of arms, though policy and good government have largely aided us. In like manner we must hold it. The Englishmen must always be in the front rank, holding the post of honour and of power as the condition of our retaining our rule”.
It may be noted here that no Indian ever rose to the rank of even Governor of a Province. To keep the Indians at subordinate level, competitive entrance examinations for the Civil Service in India were held exclusively in England until 1928.
The Royal Commission on Public Services (1912) recommended that Indians should also be provided opportunity to run the government; but these recommendations were kept in cold storage.
The Montford Commission (1919)s recommendations to open up one-third of ICS posts to Indians and of the Lee Commission (1924) to allocate one half of the posts to the Indians by 1939 were delayed by deliberate deliberations.
By 1939, there was no potential Indian bureaucray which could have taken over from the British: it was this policy which prolonged the British rule. However, the Second World War worked against this policy. Britain was forced to devolve the task of administration upon as many Indians as possible.
Maurice Zinkin tells us about this: “The land was scoured, and scoured again, to find army officers, purchase officers, officers of a hundred and one different sorts. The arcana of power were made public, and Government gave itself over to what was in effect one of the greatest training programmes in history.”
The Subjugation of the country was not sought only through administrative supremacy. Rather, this policy was extended into financial affairs as well. In fact it was this economic policy which not only created the strongest forces favouring the continuation of British rule, but it was this policy which kept the Indian economy under British control even after independence. It is this economic subjugation which is called neo-colonialism.
Commerce was the cause and means of British rise to power. The British Parliament had passed rules in 1720 to stop import of manufactured goods from India. Thereafter, the British Government systematically diverted the trade of India from manufactured goods to the raw materials. It was clearly in favour of the British interests rather than the interests of the subject country. The policy was clear.
Lord Salisbury explained this policy in clear terms:
…the question of administration interests us very much, and we hope that great advantage may be conferred upon the natives by the introduction of English Government, and the enforcement of the case which accompanies English rule; but the administration of the country is not the sole of main object that should interest us. It is our business in all these new countries to make smooth the paths for British commerce British enterprise, the application of British capital….
Another Prime Minister, Joseph Chamberlian also stressed upon the commerce as the means and end of the British policy. He said:
What is the greatest of our common obligations? It is Imperial defence. What is the greatest of our common interests? It is Imperial trade. And these two are very closely connected. It is very difficult to see how you can pretend to deal with the great question of Imperial defence without having first dealt with the question of Imperial trade. Imperial defence is large a matter of ways and means, and ways and means are dependent upon the fiscal and other commercial arrangements you may make; and they must approach it on its commercial side. These cardinal features of the British policy towards the subject countries which were the bases of Indo-British relations are reflected in all the policies they adopted in this country.
The British Government was clear in its goals which were:
(i) economic development of the country should be complementary to the interests of British metropolitan interests ; and
(ii) there should be developed capitalist system owned by the private British entrepreneurs which could be a source of power to the foreign rule in India.
The first example for the British policy towards India is clearly reflected in the tariff policy. The British Parliament had passed laws against the import and re-export of Indian goods, especially calicoes.
After the British attained political power, they raised, in connivance with the British Government, export duties on manufactured goods (to the extent of 70 per cent in case of textiles); and reduced the import duties to the barest minimum of 2½ per cent, on British manufactures.
Even when the Indian goods had been in a position to compete with British goods successfully, the Company Government purchased the raw materials from the Indian producers at an arbitrarily low price; and sold it to Indian manufacturers again on arbitrarily high price to make the Indian goods costly to push them out of competition with British manufactures. In this way the Indian indigenous industry was ruined.
After this successful implementation of policy injurious to Indian industries, the British Government advocated policy of laissez faire. Laissez faire became “secular religion of the British middle class”. The Laissez faire was not conducive to Indian interests.
The country at that time needed state protection to encourage industrialization. But India was not free like Germany or France who resorted to “protectionist policy” to compete with industrialization in Britain. Above all, the British Government itself was the staunch supporter of the Free Trade advocated by laissez fairest since it helped furtherance of British manufacturers’ interests.
It becomes clear from the remarks of Lord Harding, Governor-General of India from 1910-1916.
He writes in his Memoirs:
“Lord Morley (then Secretary of State for India) came up to us and taking me aside asked if I would like to succeed Lord Minto as Viceroy of India…. What struck me as curious at the time was that the only question he put to me was whether I was a free-trader, and I was honestly able to say that I was then and always had been a free-trader. He told me that I might regard the matter as settled…”
Ruin of the industry threw the artisans and other people living on the business of goods were rendered unemployed. They fell back upon the agriculture. The increasing population could not find a job and also resulted in diminishing returns on the fields.
There was a series of horrified famines in which millions of people died. The Famine Inquiry Commission (1881) recommended encouragement to industrialization of the country and sponsor technical training to mitigate the famine hardships and ameliorate the conditions of the vast mass of the people of India.
But these recommendations were completely ignored. When the Madras Government, supported by the then Viceroy Lord Curzon set up a Department of Industries, it “aroused the opposition of local European commercial community, who interpreted them as a serious menace to private enterprise and an unwarrantable intervention on the part of the State in matters beyond the sphere of the Government”.
The project was not approved by the Secretary of State, Lord Morley and the Department of Industries in Madras Province was instantly disbanded by the Madras Government. Anti-industrial policy was pursued solemnly in other provinces as well.
Instead of encouraging industrial advancement, the British Government was shocked when the First World War necessitated encouragement to industrial growth. On the recommendations of the then Governor General, the Secretary of State’s note is quite revealing.
The whole statement is as under:
”In India first information of change came, ironically, from Lord Harding now Viceroy. It is becoming increasingly clear that a definite and self-conscious policy of improving the industrial capabilities of India will have to be pursued after the War, unless she is to become the dumping ground for the manufacture of foreign nations who will be competing more keenly for markets, the more it becomes apparent that the political future of the large nations depends on their economic position…. After the War India will consider herself entitled to demand the utmost help which her Government can afford, to enable her to take her place, so far as circumstances permit, as a manufacturing country.”
The British had no alternative to put up with this favourable attitude towards industries. But the British Government was perhaps averse to appreciate any economic advancement which should be a competitor rather than complementary to British metropolitan interests.
In the Reforms of 1919, the subject, industry, was transferred to State Governments. While the center kept fiscal, tariff, transport, and general economic policy. It was aimed at slowing down the industrial growth which had become inevitable by the War and spread of transport-communications’ network in the country.
On this transfer, Buchanan wrote:
Unfortunately since the funds available have been wholly inadequate, no very important policies could be initiated. Furthermore, the encouragement of industry requires a far-reaching, unified government policy concerning not only raw materials and methods of production, but markets as well….It is doubtful whether the mere provincial offices set up in India will have any- considerable effect.
Though the Government of India founded an Imperial Department of Industry in 1921, but by 1931, Astey reported, “It had not yet undertaken any foregoing constructive functions.” Many a plans were taken up to develop heavy industry, but they remained just plans on papers. The policy continued up to the Second World War itself.
K.L. Mitchell reported on the eve of the War:
“British policy in the first two years of the War continued to be dominated by commercial motives, and was therefore opposed to any rapid or extensive growth of Indian-controlled heavy industries … Only the smallest beginnings had been made in the development of the metallurgical, chemical and other heavy industries for which India possessed all the necessary raw materials, and nothing effective had been done to eliminate the twin bottlenecks of lack of machinery and a skilled labour shortage which continued to cripple India’s efforts towards industrial expansion”.
Currency and Exchange Policy:
The slow and complementary oriented industrial growth was achieved through the currency and exchange policy. As in the case of political authority, the currency Act also derived authority from the British Parliament.
We have seen that the British policy had diversified the foreign trade which was favourable to metropolitan (British) interests than the Indian interests. Besides, the Indian economy had got centred upon foreign trade. The evolution of production both in the agricultural and industrial sectors was not export-oriented but also diversified to make them supplementary rather competitive. This is reflected in their policy towards currency and exchange of India.
Up to 1835, there was almost a complete chaos due to multiplicity of currency. It was beneficial to British commercial interests who believed in exploitation of the Indians commercial interests by virtue of the former’s monopoly over the trade in India. But as a result of this chaos, it had been a hindrance in the optimum exploitation of Indian resources.
With this aim, the British Government prescribed silver standard for Indian currency. By keeping face value to its intrinsic value, the Act of 1835 gave the Indians a right for free coinage of rupees. It was not, however, to their advantage.
The fluctuation in the price of silver brought about correspondingly a fluctuation in the prices of raw materials as well as finished goods. It ‘had “an adverse effect and caused a severe inflation and forced devaluation of rupee.
As a result the burden of debt, which mainly came from Britain, also became heavy. Though the silver standard was abandoned in 1893, but the currency was subjected to the sterling interests. Instead gold exchange standard was gradually introduced. Under it, the rupee became a token coin.
It was inconvertible into gold for internal purposes; but for external purposes it was convertible, at a fixed rate, into a currency which was on the Gold Standard. The exchange value with sterling pound was not only favourable to the British than the Indian, it also facilitated the drainage of gold out of the country. It remained stable for a long time nonetheless but it was an insurance to draining out the wealth of India.
Banking and Public Finance:
Banking is closely linked with ‘currency. A good banking system can strengthen the monetary mechanism; an inadequate one hinder it. Both contribute to the money supply of the country and banking helps to economies the use of currency.
Because of the close connections between the two, a Reserve Bank was instituted by the Reserve Bank of India Act. 1934. But the Reserve Bank was not in full control of India’s credit mechanism. It was done especially to safeguard Agency Houses and Joint Stock Companies which had, been, in majority of the cases, set up by the British to outwit the indigenous bankers.
The Agency Houses, first, started operating from Bombay and Calcutta. They extended financial aid for trading activities. But the speculations soon ruined these Houses. Their place was taken by joint stock banking system.
They also failed miserably, but they swindled away the money deposited by the Indians. Besides, by not providing a sound banking system the credit facility could not be developed in extending industrial base in India. Instead, the industrial infrastructure came under the domination of British financial houses.
It dealt upon India a resources a heavy burden and the investment in Indian enterprises with services of foreign loans. The volume of the burden is clear from the fact that on the eve of the Second World War, the sixty-one foreign agencies were managing more than 600 rupee companies in addition to a number of sterling ones.
Some were well above average ; of the ten major British houses or groups, Andrew Yule managed 59, Bird Heilger 37, Martin Burn 34, Begg Sutherland 27, Duncan and Octavius Steel 25 each, Mcleod Gillanders Arbuthnot, and Shaw Wallace 22 each, and Jardine Henderson 20. In this way the Indian economy was controlled by “Houses of Britain” and it was this policy which maintained as is criticized in many spheres, neo colonialism in the colonies like Indian even after independence.
The transport policy was also shaped by the British interests. At the Bombay investors’ year book depicted:
“British shipping interests have often claimed that they have built up the India a trade at considerable sacrifice. It is, however, well known how MacKinnon obtained at the breakfast table a subsidy, from Sir Bartle Frere, the then Governor of Bombay, in 1863 and turned the Burma Steam Navigation Co. Ltd. into the British India Company of today. Not only did the British India not undergo any sacrifice but it minted tons of money by its virtual monopoly of the coastal trade in India….Moreover, it was almost a scandal when the presence of Lord Inchcape as the Chairman of the Retrenchment Committal in India secured for his company, the British India, a contract for the carriage of coal to Burma for a long time period of ten years on very favourable terms—which the Government refused to disclose—without even giving an opportunity to an Indian company to put in the tender despite the assurances given by the Government….”
It need not mention the large sums of money which have been paid to the British shipping companies under the Mail Contracts and the exclusive privileges given to them for carrying practically the entire requirements of Government stores and other materials on the coast.
Under the guise of helping the so-called “Empire Shipping’ which meant in practice British Shipping only, the Civil and Military Officers enjoying the benefit of Lee passage were practically compelled to travel by the ships of the British Lines. And even today when they want to appoint a Controller of Indian Shipping who is expected to look after the interests of ships owned, controlled and managed by Indians, the British Government of India cannot find a responsible Indian to fulfill that office but has appointed a Britisher who in his life time has done everything possible to stifle the development of Indian shipping in this country.”
In this way, the British policy was systematically superimposing the British economy which actually made the Indian economy its complementary economy. It not only resulted in lopsided growth of industrial and agricultural sectors but also it was responsible for technological backwardness of India.
Michael Kidroa has explained it in these words:
“No family group, however, extended, could provide the resources of empires of this size and diversity, the more so as hired management was even less plentiful than it is today.’Cheque book capitalism’ took root, the managing agency system was made to reveal an incredible capacity for financial manipulation and malfeasance, ‘selection and promotion…. by favour’ became the rule, ‘sufficient regard….not being paid to efficiency’, and technological backwardness fed on itself ”.
Add to this the lack of a machine making industry, the need therefore to carry large stocks at the end of a long foreign-dominated supply line, the difficulties of adapting foreign machinery, and multitude of associated factors and the general inefficiency of Indian industry can begin to be grasped. Paper manufacturing might serve as an example, it only, because it was closely scrutinized as late as 1954.
“Most foreign-made equipment was planned and constructed for use under contrasting climatic conditions, and with dissimilar raw materials, differing grades of chemicals, and more highly trained workers than are to be found in India. In consequence, this equipment often gives unexpected difficulties and generally operates at lower efficiency than it would in its native land.”
“Additional problems arise from the fact that many imported units have designed into them automatic devices and mechanical conveyors which are economically justified only in countries where labour cost are much higher than they are in India. In this way, the Indian requirements not only depended on the foreign, especially of British, markets, but also ensured what the Directors of East India.
Company cherished in their instruction to their Administrative Officers in India in 1832 that they would ‘ not like to rule over millions of natives” but would certainly cherish to have lacs of “permanent consumers” of British goods even if they were independent of British political rule.
Therefore, Montgomery Martin rightly put it in 1838 that so constant and growing a drain would make even England poor; how severe then must be its effects on a poor country like India, where the wage of a labourer was two or three pence a day? Burke also described the ruinous effects of the constant drain.
He said; the Tartar conquerors made India their home; so their unlawful loot went back to the people, and their own interests lay in India’s prosperity; trade and industries prospered. But the English rulers were like birds of passage – and of prey —and there was an endless procession of new men going out to exploit Indian and to become “nabobs” overnight.
Drain of Wealth:
Therefore, we reach to the conclusion that though there were administrators like Bentick, Munro and Wingate who loved Indians and therefore, are remembered by Indians as their well-wishers, but the economic policy had not only established institutions which could continue the exploitation of the Indian resources to the advantage of British financial houses. Their policy had also systematically drained out wealth of India.
The country in which all the streams of gold and silver were flowing in and there was no gate open for going out of that wealth had been made a pauper houses. In every aspect of their economic activity, the people of India were paying a share, directly or indirectly, to the British financial country. Many a scholars have estimated this, but it is such an aspect which needs a thorough study to find out the means and volume of this drainage.
Here we are giving various theories and estimates which have been made so far by various authorities:
Montgomery Martin is the first authority who estimated the drainage in 1838. He wrote; ‘ This annual drain of £3, 000, 000 on British India, amounted in thirty years at 12 per cent, (the usual Indian rate) compound interest to the enormous sum of £ 723,997,917 sterling … So constant and accumulating a drain even on England would soon have impoverished her; how severe then must be its effects on India, where the wage of a labourer is from two-pence to three-pence a day?” He further writes that “For half a century we have gone on draining from two to three and sometimes four million pounds sterling a year from India, which has been remitted to Great Britain to meet the deficiencies of commercial speculations, to pay the interest of debts, to support the home establishment, and to invest on England’s soil the accumulated wealth of those whose lives have been spent in Hindustan. I do not think it possible for human ingenuity to avert entirely the evil effects of a continued drain of three or four million pounds a year from a distant country like India, and which is never returned to it in any shape.” It is this constant drainage which is criticized as “neo-colonialism” by the independent countries of the Third World who had been under imperial domination of the European countries.
Another scholar who has studied the glorious past of India writes: “Estimates have been made which vary from £ 500,000,000 to nearly £ 1,000,000,000. Probably between Plassey and Waterloo the last-mentioned sum was transferred from Indian hoards to English banks”.
He further holds that “In estimating the loss to India in the nineteenth century the start must be made with Mr. Martin’s figures:
“Thus, the adverse balance of trade against India during the last century, even at the low rate of interest I have adopted, reached the enormous total of nearly £ 5,000,000,000. If one could follow the money in all the ramifications through which, in India, it might have passed, its fertilizing effect in every one of the five hundred and forty thousand villages, its accumulating power (money makes money) fructifying in a land where its expenditure would have led to an increase in substance, it would, even then, be impossible to put into words the grievous wrong which (unwittingly but, all the same-, culpably) has been done to India.”
“Now that I have reached this point in my exposition, I turn to page 372-373 of the latest issue of Financial and Commercial Statistics for another purpose, and find that, in taking £ 7,500,000 as a fair estimate of India’s annual payments to the India Office, I have greatly underestimated the facts. I ought to have reckoned those payments at £ 9,500,000 for each year.
This drainage of wealth went on increasing. In the next four years there was an excess of £ 112,272,174 on account of exports; £ 222,616,621 on account of Home charges. The disbursements in England from 1902-03 to 1913-14 was to the tune of £ 490,041,294.
It was this drainage of wealth which subjugated the whole economy to the British financial houses. Though the First World War had weakened the hold of these Houses, it was only the Second World War which removed the neck-stone of debt imposed upon the Indian economy.
Still the whole economy was diversified in such a way that it was to be a formidable task to get rid of the yoke of joint stock companies and agency houses which had put the economy to ultra-national interests.
According to an estimation some Rs.1,350 crores of British capital was shipped out between August 1942 and July 1948. More than Rs.720 crores of this was on account of the retirement of private loans and business investment. By mid-1948, the tide turned to other direction.
It was more clear in the managing agencies. In 1938, there were 61 British-controlled houses, by 1962, no more than 25 (including the separate parts of amalgamations) remained British, 32 passed into Indian control, and the rest disappeared or were not known to be active or were difficult to allocate.