The Great Indian story of riches to hardly rich – The British episode

When one studies Indian history they inevitably visualize a wealthy nation with a rich culture and knowledge base. We covered the riches of Ancient India here.

In 1000 AD China and India were the top 2 economies, contributing to 50% of world GDP. By 1600 India’s GDP was 22% of the world GDP and ever since it had seen a downward spiral. We walk down India’s economic history and look at some milestones and multiple view points to gather as complete a picture as possible. We will present the findings in 3 episodes, starting with the British episode.

World economy

World economy 2030

According to IMF, India’s current GDP growth rate stands at 7.336% and India is 9th fastest growing nation of the world. We have steadily picked up growth ever since 1980 and we’re poised to be the 3rd largest economy by 2030. In the midst of all these ups and downs there are questions to ponder. What really happened in between? Why did we fall off track? Why didn’t the Industrial revolution happen in India (or for that fact, China?) There are accusations aplenty. Some blame the British colonial rule for looting India. Some blame the Hindu religion principles for the slow rate of growth.

World GDP history

World GDP history

World War:

During 1900-1950 world per capita the world economy itself was stagnant due to the First World War and the disgraceful protectionism by most governments between the Wars. But after 1950 while the world economy faced its “golden age” India performed below par and lost out.

Hindu Rate of growth:

The “Hindu rate of growth” has always been a point of discussion for economists. Eminent economist Prof. Rajkrishna coined the term in 1970 and believed that the religion’s principle of karma and contentedness was primarily responsible for the slow rate of growth of Indian Economy before the liberalization reforms of 1990’s. One good view of why this theory is wrong, is presented here. If we delve into the economic history of this nation we are bound to face many interesting facts that clearly indicate that the slow rate of growth was mainly because of the socialist reforms and some wrong assumptions made by the first governments and not because of the religion. The Fabian socialist economic model adopted after independence has slowed down the economy to such an extent that it closed its economy and pursued import substitution.

Indian manufacturing history:

Let us consider some interesting facts about our economy. Though India was one of the world’s leading manufacturing countries during the 18th century it lagged behind the Western Europe in technology. It had every single factor that could incubate a revolution, except the fact that  Indian labour was all manual and could not compete with new technological advancements. India had such a large population that all labour was accomplished manually and there was no incentive to invent machinery and improve productivity. This became such a huge drawback and the Industrial revolution thus eluded India. India’s weavers and thus Indian economy became victims of technological obsolescence.

British India

British India

What the British did:

  1. English men observed that there was surplus labour that was cheap. They used India as a cheap source of labour and raw material to fuel the industrial revolution in their own country. Thus they de-industrialized the nation and drained her wealth and put her artisans out of work. This has led to a common belief that the British colonisation has slowed down the Indian Economy. But it is still disputed how much the Britishers drained our coffers.
  2. Britain also changed the old land revenue system to the disadvantage of the farmer.
  3. Britain used India’s trade surplus to finance her own trade deficit.
  4. The Indian trade was ruined through restrictive trade practices. British levied levied 70 to 80 %
    duties on Indian made goods.
  5. As Indian goods became less competitive, artisans lost their jobs and migrated to villages towards agriculture. Agriculture itself was struggling as landowners were taxed heavily.
  6. The British owned the plantations employing Indians as labourers and the agricultural profits were also pocketed by them, thereby totally impoverishing the labourers.

Table – Relative shares of World Manufacturing Output 1750 – 1900 CE

United Kingdom1.9%4.3%9.5%19.9%22.9%18.5%
% Area of India under British Domination34085100100100

This is proof of the reversal of fortunes of the British and Indians.

Why didn’t the Industrial revolution occur in India?

  1. Modern industry employed only 2.5 million people out of population of 350 million.
  2. Indians were just too poor to buy modern goods and services, so there was no effective domestic market.
  3. The Indian businessmen could not resort to exports as well as the goods produced were un-competitive in a world market due to lack of technological advances.
  4. Indian agriculture remained stagnant there was no agricultural surplus to feed a rapidly growing urban population, which is a pre-requisite for an Industrial revolution.
  5. The International trading environment was not conducive due to the world war and depression.
  6. Most of the Indian masses were illiterate.
  7. British colonial rule’s greatest drainer was not wealth but confidence. Most Indian entrpreneurs lost confidence and self belief due to political enslavement.

By 1850, Indian entrepreneurs started establishing their own textile mills and slowly by 1947 India’s position grew strong. The entrepreneur’s self belief had been restored slowly. Strong entrepreneurs bought businesses left by the departing Britishers. Industry’s share in India’s GNP doubled and manufacture contributed to India’s exports.

It is undeniable that the British era de-industrialized India and impoverished her.Dr Shashi Tharoor’s recent speech is testimony to that. But, could we have done anything to protect ourselves from the Industrial revolution? Many a times there are multiple factors hidden from normal view, silent changes brewing in darkness that cause a so-called sudden collapse.


  2. Did the British pauperize India?

  1. Ruin of India by the British Rule

  1. How the British ruined India

  1. Democracy vs Capitalism

  1. Democracy and Capitalism in India

  1. India’s role in the industrial revolution

  1. Unequal effects of Liberalization
  4. Licence Raj


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