Hota Answer – Demarcations Part

Evolution of Entrepreneurship in Pre-Colonial

India
At its height the Mughal empire had imposed on the greater part of the
Indian sub-continent a fair measure of political unity. Centralized
administration, a uniform revenue policy, a network of inland trade
fostered by Mughal peace and active encouragement to an expanding
overseas commerce created conditions in which economic stimuli
travelled fast enough from one part of the empire to another. Prices in
the different ports and emporia moved along similar if not identical lines.
The empire was of course not a firmly unified modern nation state and
subsistence agriculture sustained a hard core of economic isolation in all
but the most commercialized regions. Yet imperial unification under the
Mughals had, beyond reasonable doubt, strengthened the economic links
connecting its far-flung territories and stimulated an expansion of
commerce and productive effort.
By the middle years of the eighteenth century the empire lay in ruins, its
once vast possessions reduced to 'roughly a rectangular wedge of
territory about 250 miles from north to south and 100 miles broad'. The
imperial governors did not formally deny their allegiance to Delhi, but
one after another they had asserted their autonomy.
Historians of a later generation have equated the decline of the Mughal
empire with sharp downward trends in the Indian economy, and assumed
that by the mid-eighteenth century it had reached its lowest ebb. In many
parts of the empire for varying lengths of time, war and anarchy did
produce dire economic results. Delhi declined through the weakness of
central authority and repeated incursions. A number of contingents
withdrew to the provinces and the metropolis lost its primacy as a market
for goods and services. Large groups of craftsmen moved to other towns
in quest of more secure livelihoods.
That political disarray and armed conflict had severely affected economic
life in many parts of the country is beyond doubt. It is not equally clear
that this implied a general decline in India as a whole. Even at the heart
of the much-ravaged empire, Agra under Jat and Maratha occupation was
a flourishing city until 1787 with many of the wealthy Delhi citizens
finding refuge in its comparative security. In this region, there appears to
have been an eastward shift in the urban centres of manufacture and
commerce.
Despite the Maratha raids and Alivardi's extortions, the real decline in
Bengal's economy was largely a post-Plassey and even post-1813
phenomenon. The silk industry near Kasimbazar, nearly extinguished in
the 1740s by the Maratha raids, was again flourishing in the 1750s partly
in response to the rising demand in the UK.2 Cotton textiles, the major
manufacturing industry, flourished despite the negative consequences of
the Company's monopoly till the loss of its export markets in the
nineteenth century. Imperial decay was in fact compensated for to some
extent by the prosperity of the new provincial kingdoms and the
emergence of new centres of trade and industry. The Deccan under its
Asaf Jahi rulers was equally affluent. Benares, under a semiautonomous
local raja, achieved a new level of prosperity. Wealthy and skilled
migrants from the capital contributed to the prosperity of the provincial
metropolis. The most striking evidence for the resilience of the economy
is to be seen in the power of the great financial magnates like the house
of Jagat Seth, who could despatch the entire revenue of the Eastern
Provinces as a hundi drawn on their Delhi agents.
By the mid-eighteenth century, development of market forces had made
deep inroads into the subsistence character of Indian agriculture, though
the producer continued to meet all his requirements of food out of his
own produce. But, at least in some areas, the poorer agriculturist
depended on the trader-moneylender for the supply of seed and
foodgrains six months in the year. The involvement of farmers with trade
and of traders with farming, the extensive dependence of market
orientated production on advances from buyers, the wide prevalence of
rural markets and their links with the arteries of inland commerce, very
substantial growth of non-food crop production and some tendency
towards their localization - all these developments were features and
indicators of increasing commercialization.
Agriculture and horticulture in India were thus receptive to new items
and responsive to market demand. Yet farming technology was
remarkably backward and stagnant, not only as compared to that of the
agricultural revolution in Europe or of Tokugawa Japan, but also in
relation to mainland China. A relatively stagnant technology and rather
rudimentary implements were characteristic features of manufacturing
as well. Both early modern Europe and mediaeval China were far ahead
of mid-eighteenth-century India in such crucial fields of technology as the
use of wind and water power, metallurgy, printing, nautical instruments,
and basic tools and precision instruments. Here again, of course, the
pattern was not one of total stagnation, but rather of a general
indifference to labour saving devices.
The indifference to technological progress was in sharp contrast to the
extraordinary sophistication of manual skills. By the end of the
seventeenth century, the Indian weaver could reproduce on his
rudimentary looms 'the nicest and most beautiful patterns' imported from
Europe. Yet, on the debit side, India failed to produce proper cast-iron,
manufacture the glassware which fascinated her royalty and aristocracy,
use her coal despite the availability of surface deposits and develop deep
mining except in the case of the horizontal diggings on the Salt Range. In
sharp contrast to China, mechanical clocks from Europe - much admired
toys in the Mughal courts — were never imitated or taken apart out of
curiosity.
A curious fact about the pre-colonial manufacturing organization is that
the presence or growth of 'capitalistic' features modified but little the
traditional caste basis of the entire system. The fantastic degree of
specialization in textile production was linked to the fact that each
variety of cloth was the speciality of a particular sub-caste. The artisans'
guild was in fact the local caste guild of manufacturers of particular
commodities, the head of the caste ensuring the maintenance of
traditional methods and standards. One major exception to this pattern
was the movement of other castes, including peasants, into the
profession of weaving, but this seems to have made little difference to
the primacy of birth as the determinant of one's occupation.
One notices regional as well as functional specialization among different
ethnic-cultural groups of merchants. The commerce of a particular region
was dominated by merchants of a particular caste or community, such as
the Chettis in south Coromandel, the Komatis and Muslims in the north,
Muslims of diverse origin and Baniyas in Surat, Pathans in north Bengal
and Bihar, Bengali Hindus in southern Bengal, Konkanis and Arabs in
Malabar, Sindhis in western India and Armenians everywhere but
especially in Bengal and Coromandel. There was, of course, some inter-
regional movement and the Marwari financier was beginning to spread
out over an extensive region. By the eighteenth century, overseas and
even coastal trade was dominated by Muslims while Hindus confined
themselves mainly to the less risky inland trade and moneylending. Some
Hindu merchants of Surat continued to trade with the archipelago.
The debate concerning the level of India's economic development in the
pre-colonial era is unlikely ever to reach a satisfactory conclusion and
potentialities: in fact, it has been suggested that in response to
expanding demand the country was moving towards an industrial
revolution, a prospect frustrated by the intervention of colonial rule. At
the other end of the spectrum of opinion, all Asian economies – Japan
alone excepted as a European-type society freakishly placed between
wrong longitudes — are seen as perpetually stagnant, technologically
backward, with low levels of output and institutional-ideological features
which precluded industrialization.
Backward' or even 'stagnant' are not very appropriate adjectives for
describing the economy surveyed in this chapter. The performance of
even the subsistence-orientated agriculture was quite high, no doubt
owing to the availability of very fertile land for a relatively small
population rather than to any technological excellence. High productivity
implied possibilities of saving and investment as and when the occasion
would arise: the resources which went into the creation of the Mughal
monuments and supported that vast empire represented a very
substantial surplus. More important, there was a large commercialized
sector with a highly sophisticated market and credit structure, manned
by a skilful and in many instances very wealthy commercial class. It drew
upon a wide range of manufactures and commercial crops to supply an
extensive domestic as well as overseas market. India's textile exports met
the basic requirements of cloth in several parts of south-east Asia and the
Middle East.
Yet all this did not amount to an economic situation comparable to that of
western Europe on the eve of the industrial revolution. India had not
witnessed any agricultural revolution. Her technology — in agriculture as
well as manufactures — had by and large been stagnant for centuries.
For a country so advanced in civilization, the technology was also rather
primitive. The use of inanimate power in any form was virtually unknown.
The competitive strength of India's manufactures in the overseas market
was based on a ruthlessly inequitable system of distribution. Yet in the
long run the manual skill of the Indian artisan could be no substitute for
technological progress.
The weakness of the Indian economy in the mid-eighteenth century, as
compared to pre-industrial Europe was not simply a matter of technology
and commercial and industrial organization. No scientific or geographical
revolution formed part of the eighteenth-century Indian's historical
experience. In terms of ideas and attitudes, mid-eighteenth-century India
was not all that different from the country described by Marco Polo.
Spontaneous movement towards industrialization is unlikely in such a
situation.

Colonial Economy: Imperial Priorities and Indian

Economy
What made the British Colonial Govt colonial? – The simple answer is
that it is a government with several decision-making centres.
After Pitt’s India Act of 1784, a three-headed government came into
being. The India Office in London managed the currency and raised loans
from the banking district of London. The governor-general or viceroy
collected the Indian taxes and decided how to spend it. The viceroy
decided policy in consultation with a council consisting of members who
specialized in law, military affairs, and public works. The third head of
the government was in the provinces where the local government raised
some local taxes and spent this money and what it received from the
centre on roads, schools, and hospitals.
What difference did divided heads of government make? It made
innovation difficult. Innovation was badly needed because the revenues,
which initially came mainly from land taxes, were small given the
generally poor yield of land. Newer and more modern taxes were slow to
develop. The economy was dependent on public debt. But here, the
government was in trouble again. For raising more debt in London would
mean a higher payment by the Indian government abroad on account of
debt service. This payment the Indian nationalists called drain and did
not like. Therefore, the government remained small. Revenue to national
income ratio was a low 3–5 per cent throughout.
Indirectly, the fact that the government had nothing quite like an
economic policy or a policy to develop India left it unmotivated to raise
incomes. Its main concern was to keep trade and factor markets open.
Trade Policy
Until World War I, trade between India and Britain was effectively free of
tariffs. Many colonial administrators believed in the benefits of free
trade. British manufactures needed to seek markets all over the world,
and many British trading firms were setting up bases in India. The
Lancashire mill owners were a powerful lobby in British politics. This
lobby resisted attempts to impose or increase an import duty, for textiles
formed the main import by India from Britain and India bought 30 per
cent of British textile export in 1865.
During the war, India’s contribution to the war effort was critical for
London. After the war, the government of India’s point of view on
taxation could not be ignored. Tariffs were a convenient way to raise
revenues at a time of scarcity of money. Indian sentiments in favour of
industrialization were growing. And the influence of British business on
the imperial policy was in decline. Japan had emerged as a competitor of
Britain in Asian markets. These circumstances weakened the resistance
to customs tariffs. There was steady and significant increase in average
tariff rates after 1920.
Tariffs were one part of trade policy; controlling the value of the
currency was another. The government’s control on the Indian exchange
rate continued to be controversial.
Fiscal System
The British Empire in India was a poor state. Tax per head in British
India was among the smallest not only in the world but also within the
imperial domain. The state earned too little money because it relied on
the land tax and land yielded little. This dependence on an archaic tax
was reducing over time but not quickly enough. British India was not a
weak state. It spent enough to maintain a large army. By this means,
British India kept the princely states pacified and the internal and
external borders open to trade, migration, and investment.
In this latter role, the power of the State was an instrument to forge
close interdependence within India, and between India and the world
economy. But the State never had much money left over to spend on
public goods or agricultural development.
At any time in the nineteenth century, the principal tax was the land
revenue. Fragmentary data show that land revenue accounted for 80–95
per cent of total revenue in 1809–10 in the provinces. In 1858–9, land tax
yielded about half of total revenues. Provincial statistics show quite a
large variation in the pattern, predictably, with the Permanent
Settlement areas showing the least dependence on land revenue. Next in
importance were two commodity taxes of a rather special nature—one of
those imposed on the export of opium and the other on the sale of salt.
Together, the taxes on these two items accounted for 24 per cent of
revenues in 1858–9.
A more modern type of tax, such as income tax, customs, and excise,
accounted for a small proportion of revenue (12 per cent in 1858–9). The
tax system as a whole, therefore, was regressive and income-inelastic.
After World War I, the pattern of taxation changed. The importance of
land tax had decreased to about 20 per cent of revenue in the 1920s.
Land tax as a proportion of the value of agricultural production declined
from possibly 10 per cent of net output in the middle or early nineteenth
century to less than 5 in the 1930s. The opium tax became negligible and
salt tax was a smaller source than before.
On the other hand, income tax, customs, and excise had expanded their
combined share to over 50 per cent. The government’s limited revenue
went to fund defence, civil administration, and debt service. Some of
these expenditures were made in sterling and went out of the country.
For example, interest payment on loans raised to finance construction of
railways and irrigation works, pensions paid to retired officers, and
purchase of stores were payments in sterling.
These payments, Indian nationalists argued, reduced the capacity of the
domestic economy to generate savings and investment, an argument that
became known as the drain theory. In principle, if taxes funded such
payments, domestic consumption or saving could fall. If the government’s
savings funded such payments, public investment could fall. If foreign
loans funded such payments, debt service would rise. All three methods
were used to meet these charges. None of the adverse effects would
follow if these charges corresponded to factor services that increased
national income potential adverse effects, in other words, depended on
the value delivered against these charges. The drain theorists did not
measure such value and ignored the issue.
In the twentieth century, the demand for welfare expenditure gained
strength. The demand arose from the realization that education was a
means of social advancement that the colonial rulers neglected. Partly, it
was a result of political decentralization after 1919, whereby provincial
budgets, responsible for education and health, became more exposed to
local political pressures. High levels of illiteracy and mortality showed
that being a colony of Britain for over half a century had done little to
enable India to approach British standards of social development.
The slight rise in the proportion of public spending on education and
health in the interwar period reflects an attempt to redress this neglect
of social infrastructure. The attempt, however, was a limited one, given
the government’s poverty and other expenditure commitments.
Monetary Policy
The larger aim of monetary policy was to stabilize economic transactions
between Britain and India. In turn, this larger aim contained three
specific aims—to make private transactions free of exchange risks, to
provide the government some stability in its calculation of the
remittances to be paid, and to restrain India’s import of gold.
The Indians’ love affair with gold worried the monetary authorities. India
played a countercyclical role in the world economy. This role was
mediated by the desire of Indians for gold and silver. In a world
characterized by fixed exchange rates and gold as a main item of
reserves, economic growth in India led to Indians buying a lot of gold at
the expense of monetary gold elsewhere. This the authorities worried
about.
These aims and anxieties caused little political controversy until World
War I when the British economy was growing and India’s trade and
industry benefited from the connection with Britain. But the environment
changed after that. The monetary policy of British India became a source
of controversy in the interwar period because the objective of protecting
the budgetary obligations, it was argued, prevailed over the objective of
helping private commerce.
Economic Nationalism
The 1920s saw the articulation of two types of criticism of the monetary
regime that fed into the sentiment that historians often call economic
nationalism. The phrase means the claim that a nation needs to be in
control of its economy and sometimes regulate it with a heavy hand to
assert its independence.
Business persons and nationalist politicians alleged that the rupee
tended to be systematically overvalued to subsidize government charges
in sterling. Such a bias effectively taxed exporters, even though it might
encourage private investment in the shape of imported capital goods. The
main evidence for inadequate supply of rupees was a steady decline in
price level in the second half of the 1920s.
A second criticism found expression in contemporary scholarly views on
India but took shape more explicitly in later research. India, like the rest
of the interwar world, had a fixed or closely controlled exchange regime.
However, while the world retreated from fixed exchange rates during the
Depression, in India, monetary policy remained overly rigid because of its
status as a colony.
During and after World War I, Britain was faced with trade and liquidity
problems at home and feared that the Indian gold appetite might upset
Britain’s own post-war adjustment process. Under these fears, the British
authorities tried to restrain expansionary tendencies in India. In short,
adjustment in a beleaguered Britain hurt economic expansion in India.
The classic example of the divergence of interests was the Great
Depression.
These specific criticisms of monetary policy joined a wider criticism of
the open economy that Britain had imposed on India for so long. Demand
for tariffs grew. Antipathy towards foreign capital was rising. Britain, it
was said, was not only dealing with its short-term crisis using India but
had used India all along to grow rich.
The nationalists accused the British government of ruling India to serve
British interests. The proposition was correct. The British government
did have British economic interests in mind while ruling India. But British
interests and Indian interests did not necessarily conflict. In the golden
age of globalization, roughly 1860–1914, the government tried to keep
conditions of trade as stable as possible and this would have helped many
businesses with a stake in the world economy.
Conditions, however, changed in the late 1920s. Fewer Indians had a
stake in a collapsing world economy, and the government’s attempts to
force a customs union on India angered them. Late in the interwar
period, British interests, and Indian interests were not compatible
anymore.
The long-term failure of the state did not, however, rest on whose
interests the state was serving; it rested rather on the weak capacity to
make investments and, in turn, on the methods adopted to manage the
economic system. The most serious weakness of the method was the
divided responsibility between London and India, a situation that forced
both parties to be conservative and risk-averse. The state was poor,
thanks to its dependence on agrarian taxes. It stayed poor because of its
cautious approach to debt, commodity, and direct taxes. It became
bankrupt because, in the strained conditions of the Depression, British
investors lost interest in Indian securities.

Infrastructure Development
After Independence in 1947, the visible legacy of colonial rule in South
Asia was the modern infrastructure that the regime had left behind—the
ports, canals, the telegraph, sanitation and medical care, urban
waterworks, universities, postal system, courts of law, railways,
meteorological office, statistical systems, and scientific research
laboratories. All of it involved British knowhow, adapted to the Indian
environment with Indian help, and much of it was built to assist
governance.
Once built, such assets did not serve only the empire but also helped
private enterprise and ordinary people lead better lives. Railways
brought down the very high trade costs of earlier times and helped trade,
while also aiding famine relief and migration of people from the village to
factories and plantations.
There was no one motivation that led to the creation of these assets. A
development policy of which infrastructure was a part did not exist.
Rather, military, commercial, and fiscal motivations all combined their
influence on infrastructure investment. The absence of an explicit
developmental goal-imposed unevenness in the way these assets were
created. There were huge regional inequalities in the supply of these
goods. Princely states were in poorer, drier, and hillier areas than were
most British Indian districts and lagged in railway construction.
Private investors built the railways; the state guaranteed a return to
capital. Canals and roads were a state investment. Administration
differed too. Initially, the military departments built and managed some
of these assets. Over time, administrative departments took over the
task. A division of labour evolved. The provinces looked after roads,
schools, and healthcare; the federal government looked after the
railways.
A few principles stood out. One of these was that the state must invest in
canal irrigation if it were to avoid the recurrent famines happening. This
imperative came from prevailing climatic conditions, the notion that
failure of rains for part of the year could create conditions that caused
mass deaths. A second general principle concerned the railways. India
was a composition of many types of geographies, and unless a railway
system integrated these geographies, there was little hope for turning
India into either a market for British goods or a supplier of food and
material aboard. Trade was a priority for the empire.
In the interwar period, pushed by the nationalist movement and public
opinion, the state adopted economic and social development as explicit
goals. There was now more emphasis on schools and hospitals. However,
this turn came at a time when the state was running out of money. In this
time, some of the princely states forged ahead with schools and hospitals.
In the nineteenth century, the main focus of productive investment by the
state was irrigation, railways, roads, and the telegraph. The pre-existing
transport infrastructure of India was backward, given the size and
geographical diversity of the land. There was a growing view that the
famines in the nineteenth century could be averted with more irrigation
and more railways to distribute food from surplus to deficit regions.
The government, however, had limited financial capacity. It needed the
intervention of a few people to turn infrastructure into a priority. One of
these campaigners was Lord Dalhousie (James Broun-Ramsay), who in
his dual capacity as the governor-general of India and governor of Bengal
between 1848 and 1856 and from the belief that colonialism had a
modernizing mission, was influential. A decade earlier, the British
intellectual Thomas Macaulay had served Indian administration (1834–8)
and set out a manifesto of Indian development, which made the case that
Britain had a duty to impart useful knowledge to India. Dalhousie
established the Public Works Department (1854) and initiated moves to
set up a railway and a telegraph system. His successor Charles Canning
(1856–62) had to pick up the bill but continued the drive. Charles Wood,
who served as president of the Board of Control (1853–5) and as
secretary of state (1859–66), simplified the administrative process in
building infrastructure and created the Education Despatch, which set
out the plan for grants-in-aid schools and three universities in India.
IRRIGATION
The Famine Commission enquiries from 1876 made it a canon that India,
thanks to its tropical monsoon climate that made the region very hot and
the rainy season very short, suffered from an acute seasonal scarcity of
water, and that any serious effort to raise production and secure the
welfare of the population would have to start with projects that delivered
a reliable supply of water. In the end, the government could not do a lot
in this direction, partly because of funds constraint and partly because its
engineering knowledge was just enough to make use of rivers that had
plentiful supply of water throughout the year and to draw canals out of
these.
Major new irrigation projects from the late nineteenth century were
canals taken from Himalayan rivers (in Punjab, Sind, and UP), and were
constructed on major rivers (South India). The Punjab canals spread
water over formerly water-scarce territories, in contrast with canals in
South India that mainly redistributed monsoon water and with canals in
the UP that added surface water in a region well-endowed in
groundwater.
Among the largest projects undertaken were the Krishna and Godavari
delta systems (1868) together serving close to a million hectares, the
Western Jumna (Yamuna) Canal system (1892, half a million hectares),
Sirhind canal (1882, one million hectares), Cauvery delta system (1889,
425,000 hectares), Upper and Lower Ganges canals (1854–78, 1.3 million
hectares), and Sarda canal (1926, about half a million hectares).
The non-monetary returns of irrigation projects, such as famine relief or
increased prosperity for cultivators, were also mixed. The canal-irrigated
area as a percentage of cropped area was not too different between
Madras and Punjab in 1900. Yet, Madras suffered far more from famines.
Canals, as such, did not prevent water scarcity in the dry months if the
region suffered from a general shortage of rain.
In other words, the natural supply of water shaped the capacity of canals
to prevent famines. In several parts of the canal-served agrarian
countryside, there were dramatic improvements in the wealth and
income of the people. But the human and economic costs of these
extensive projects were also large.
RAILWAYS
Until the mid-nineteenth century, the common systems of long-distance
transport of cargo were pack animals and small sailing vessels on
navigable rivers. The semi-nomadic Banjaras drove large trains of pack
animals on roads that connected western and southern India with eastern
and northern India. In the Gangetic plains, the rivers provided a major
means of long-distance commodity trade. For short-distance trade and
travel, the common means of transportation were palanquins, small river-
crafts, and bullock carts. The older systems of long-distance trade
required a lot of labour and time. The railways destroyed them without
much resistance.
In the 1840s, there was a vigorous campaign for railways by the City of
London, which was the principal financier of railways in Britain, and by
business communities in London, Liverpool, Calcutta, Bombay, and
Madras. In 1849, the Cabinet, the Company and the promoters agreed to
establish two experimental lines, one connecting Bombay with the
Deccan cotton zones and the other connecting Calcutta with the Burdwan
coalfields.
From the beginning, two principles prevailed. First, the railways would
be constructed by private enterprise on a 99-year lease, with the
Government of India having the option to purchase the lines after 25
years. And second, the government, from its budget, would guarantee a 5
per cent return on capital where a company failed to earn a minimum of
5 per cent return. In exchange, the government exercised supervisory
and advisory powers on railway development and administration. Once
the contract had been agreed, railway development began in earnest,
with capital raised in Britain.
The principle of railway construction went through four stages: 1849 to
1869 saw only private enterprise; 1870–80 saw the accent shifting
towards state enterprise; from 1881 to 1924, recourse was again had to
private enterprise in management with state ownership; and from 1924
onwards, the state assumed ownership as well as control.
The economic effects of the railways came in two types.
First, the railways stimulated a variety of activities and livelihoods.
Railway construction worldwide stimulated the engineering industry,
financial markets, and labour markets. The effect on the capital market
was small since the major part of the capital came from London. The
labour market effect was of greater importance. By 1947, the Indian
railways were the largest employer in the organized sector, a distinction
maintained today. And the railways facilitated internal labour migration.
Second, the railways greatly reduced the average transportation cost
measured in money and time (Table 8.2). Import and export trades in real
terms increased enormously as a result of this reduction. Because these
costs became a smaller part of the price, the supply of goods now
responded to narrower differences between local and world prices than
before. Raw cotton and hide and skin exports quickly expanded owing to
this. The railways also facilitated the integration of markets, evident from
declining regional variability in prices of foodgrains.
Indian nationalists relentlessly criticized the railways. One point of
controversy is the railway guarantee, which imposed a net payment
burden on the budget and contributed to what the nationalists call drain
of resources. By enabling grain exports, railways increased the risk and
intensity of famines in India, whereas British capital in trade and railway
construction gained, they said.
PORTS
The ports that carried the bulk of the foreign trade in the colonial period
were new sites where railways and modern harbours converged, for
example, Bombay, Madras, Calcutta, Karachi, and Rangoon. Each served
as an export outlet for the products of a vast hinterland. The two western
Indian ports enhanced their trade manifold with the American Civil War
(1861–5) and the opening of the Suez Canal (1869). After that, Calcutta
and Bombay also grew to become industrial centres. World War I, while
upsetting private businesses through these ports, emphasized their
military importance. The Bombay docks saw a modernization drive in the
early interwar period.
POSTS AND TELEGRAPH
The foundations for a government postal system were in place before
1858. But it became a widely used utility only in the late nineteenth
century. The process was led partly by the opening of post offices in
semi-rural areas. More than that factor, it was drive by the demand for
the services of the post office. Migration and money orders, for example,
were closely interdependent.
POWER
Electricity generation in colonial India saw significant private– public
coexistence and cooperation. (After 1947, by contrast, the system was
almost completely nationalized.)
The report of the Indian Industrial Commission (1918) laid great
emphasis on the need for organized exploitation of natural resources,
including hydroelectric power. However, efforts in this direction had to
wait until the mid-1920s, when the provinces recovered from the initial
trauma of dyarchy—provinces had elected governments but limited
autonomy—and pursued some of their now exclusive duties like
electricity generation. In the interwar period, a large number of
hydroelectric and thermal power units started, many of these in the
territories of the princely states. In 1947, the installed capacity stood at
1.7 million kW.

Labour Laws and Industrial Relations

Two authoritative sources, the reports of the Royal Commission on
Labour (1931) and the Royal Commission on Agriculture (1928), provide
snapshots of the conditions of workers in late colonial India. They show
huge variation in the (apparent) status of different types of workers. The
Royal Commission on Labour, on one hand, describes a number of
protections for industrial workers, in factory acts and other legislation.
These protections drew heavily on British precedents: limits on hours of
work, regulation of employment of women and children, workmen’s
compensation (for injuries), and the like.
Perhaps most significantly, the commission discusses the boost to union
activity provided by Indian Trade Unions Act of 1926, and notes that the
“importance of developing healthy trade unions is denied by practically
none.
Thus, we see the Raj in three very different roles: ineffectually protecting
rural workers, undermining worker freedom via the legal recognition of
penal contracting, and proactively promoting worker welfare in the
factory sector. Labour laws emerged at different times and locations in
response to particular problems and issues. Protecting rural workers was
simply beyond the practical capacity of the colonial state and may have
also run counter to its predilection for favouring the landed classes.
Factory legislation was subject to many influences, including liberal
critics in India and Britain, British industrial interests, workers’, and
nationalist movements, and pressure from the International Labour
Organization
During the transition to colonialism (the second half of the eighteenth
century), the East India Company’s approach to labor contracting was
driven by the compelling need to obtain labor services, by whatever
means. One historian of Madras reports that workers were needed for
domestic chores, for transportation services, and for the army.10 The
company drew on indigenous labor mores as well as created newer
coercive institutions when necessary.
Workers were subject to corporal punishment, and domestic workers
were often slaves. The company also extensively drew on existing
practices of forced labor known as vetti or Al- Amanji, especially in times
of military conflict. One important feature of labor recruiting, which
continues to the present day, was the use of an intermediary, a
“headman” whose caste and community connections helped in both
locating and managing the workers.
The most discussed labor policy problem in the early nineteenth century
was, of course, slavery. Slavery seems to have especially emerged in
times of war or famine. The company’s attitude to slavery was cautious
and varied across time and space. There were numerous factors at play.
These included the intention to uphold Hindu and Muslim law, which led
to the conclusion that slavery was permitted; early court decisions that
translated this into legal practice; the concern that tax collection might
be undermined
If landowners’ rights to slaves’ labor were eliminated; some commentary
that slaves were not necessarily worse off than other workers; and the
various moral sentiments and reactions of different officials. The
company even owned slaves in Malabar.13 It is safe to say that the
company in India was not, in itself, either eager or proactive in seeking
to eliminate slavery.
But there was a powerful external pressure at work. This was the
movement against slavery in Britain, where legislation was passed in
1807 to prohibit the slave trade, and participation in the slave trade was
declared a felony in 1811. The abolition of slavery was discussed when
the East India Company’s charter was renewed in 1833. The Slavery
Abolition Act was passed in 1843.
Penal Legislation
Recent research has shown that imprisonment of workers for breach of
contract, far from being a deviation from the norm, was quite common in
England until late in the nineteenth century. The long history of the
relevant legislation has been traced from the Statute of Laborers,
following the Black Death, to the Master and Servant Act of 1823.
Under the Master and Servant Act a worker in breach of contract could
be imprisoned for three months of hard labor. The act was repealed only
in 1875, in response to political pressure from the labor movement. Given
this background, we would expect British- Indian law to contain similar
legislation. It did. The Employers and Workmen (Disputes) Act of 1860
was passed after a violent dispute between European railway contractors
and their workers in Bombay.
The act allowed magistrates to summarily decide cases, and also allowed
for imprisonment of the workers for up to two months.23 It is interesting
to note, though, that the Employers and Workmen (Disputes) Act was
limited to railways, canals, and other public works. “It was only extended
to certain districts and was seldom used” before its repeal in 1932.
The act that was widely used in India was the Workman’s Breach of
Contract Act (1859, hereafter WBOC). It was similar to the Master and
Servant Act in allowing three months of imprisonment, but it was
different in one important respect. It applied only when the worker had
received an advance. The WBOC was extended to a wide range of
locations in colonial India and was extensively used in the plantations. It
was repealed only in 1926.
The Assam plantations became notorious for their harsh treatment of
workers. The nationalist newspaper the Bengalee published a series of
articles in 1886 describing the conditions of workers as a “qualified form
of slavery,” with planters “kicking and cuffing” workers and locking
deserters in “dungeons.” A missionary, Charles Dowding, published
articles in a similar vein. in a publication called The Churchman.
Factory Legislation
In the second half of the nineteenth century, two major modern factory-
based industries emerged in India, producing cotton and jute textiles.
The modern factory was a British import to India (the machinery and
technical knowledge and supervisory staff were imported from Britain). It
was inevitable that a range of issues that had arisen in the British context
— child labor, women’s work, safety, and working hours— would need to
be addressed in India as well.
Missionaries, humanitarians, and nationalists pushed for better
treatment of workers. Perhaps the most prominent supporter of factory
legislation was Mary Carpenter, a Bristol- born social Christian social
worker, who first visited India in 1866. She supported and influenced
Sasipada Banerjee, who is considered the first Bengali bhadralok
(“respectable” middle- class) advocate of factory legislation. But,
compared to plantation- related legislation, there was an additional
factor at play now.
Both jute and cotton had rivals in Britain: Indian jute was eating into the-
market share of Dundee, whereas Indian cotton’s competition was the
more formidable Lancashire. Both Dundee and Lancashire were
threatened by lower labor costs in Indian industry and favoured worker
protections that would raise these costs. For the same reason, the India-
based industrialists, Indian and British, opposed such legislation
The trend toward increasing worker protection was reinforced by the
Washington Convention of the ILO in 1919, which established
international standards. Because India was one of the larger industrial
producers in the world, the government of India was under some
pressure to meet these standards. A Workmen’s Compensation Act was
introduced in 1923.
The Royal Commission on Labour in India (1931), whose perspective has
been described as “reformist,”64 produced a thorough and massively
documented report recommending further modifications to legislation
and also better means for implementation. Its recommendations
influenced the last of the colonial- era factory acts, that of 1934. The
royal commission’s tone and commentary are worth discussing, for the
“model” of economic development that was implicit. The commission did
not take the rural wage as a benchmark for the factory wage. On the
contrary, for the commission, industry would grow only if workers were
treated well.
In1926 the Indian Trade Unions Act was passed. The act allowed seven
workers to form a registered union and provided protections to them
from criminal and civil prosecution. In particular, a civil suit could not be
brought, in the context of a trade dispute, “on the ground only that such
act induces some other person to break a contract of employment, or that
it is interference with the trade, business or employment of some other
person or with the right of some other person to dispose of his capital or
of his labour as he wills.”73 On the one hand, legalization of trade union
activity could have facilitated labor organization.
On the other hand, Indian workers appear to have often had a loose
relationship with their unions— they might be active during a strike but
drift away subsequently. They paid dues irregularly.74 The Indian Trade
Unions Act appears to have been a response to worker militancy, part of
a broader effort to create a more predictable and reliable labor force.
The growing strength of the communist movement, especially in the form
of the Girni Kamgar Union in Bombay, was also a concern to mill owners,
and to the Congress, because it needed workers’ political and electoral
support. In its turn the Raj was worried about the rise of “Bolshevism.”
The government of Bombay pushed the government of India to crack
down on communist leaders for their alleged responsibility for violence
during the strike of 1928, though the evidence against them was weak.
Eventually, in 1929, thirty- six communists were charged with conspiracy
to overthrow the king, which led to the famous Meerut Conspiracy Trial.
After legislation was passed in Bombay in 1934, a worker could take a
concern to a labour officer instead of the union, thereby reducing its
relevance.
The Government of India Act of 1935 allowed for “provincial autonomy,”
and elected Indian governments came to power in provinces. As the
Congress gained power in Bombay it was, if anything, more willing to
crack down on labor militancy than was the Raj.
Conclusion
The colonial state’s attitude to labor varied greatly across time and
space. Protections for rural workers were limited and ineffectual. Penal
contracting was highly consequential and controversial when in place but
was entirely eliminated, and morally repudiated, by the end of the
colonial period.
Factory legislation initiated by the Raj had a modest impact, in part
because enforcement was limited. The marginalization of women in
factory work, which began in the colonial period and intensified in
independent India, was influenced by factory legislation but had deeper
determinants in social norms.
Congress adopting a role as referee between capital and labor, giving the
government extensive rights to intervene in disputes. This was one
element of a broader set of economic policies involving a larger role for
the state, adopted after independence.

Project Answer

Cotton, Colonialism, and Capital: The Fabric of Imperial

Industrialism
The history of the cotton industry in Britain and colonial India illustrates with painful clarity
the global architecture of capitalist accumulation under imperialism. Cotton was not simply a
commodity—it was a vector of capital, a medium through which the British Empire imposed
its economic will across continents. As both a driver and beneficiary of the Industrial
Revolution, the British cotton industry reveals the structural asymmetries between the
industrial metropole and the colonized periphery. Through a deliberate orchestration of
tariffs, monopolies, and trade flows, British colonial policy converted India from one of the
world’s great producers of finished textiles into a supplier of raw cotton and a market for
manufactured British goods. The result was the deindustrialization of a sophisticated textile
economy and the pauperization of its labor force. This transformation was not the accidental
byproduct of industrial modernity but a calculated act of imperial engineering—an expression
of what Marx termed “primitive accumulation,” realized through state violence, legal
coercion, and the forced integration of India into Britain’s capitalist economy.

Prior to the onset of British rule, India’s textile industry was globally dominant. The muslins
of Dacca, the calicoes of Gujarat, and the fine cottons of the Coromandel Coast commanded
high value in global trade. The textile sector was embedded in a complex system of artisanal
production, long-distance trade, and regionally specific skills that evolved over centuries. As
documented in The Cambridge Economic History of India, this decentralized yet vibrant
system supported a large class of skilled weavers and merchants and was sustained by local
demand and international exports. British commercial interests—initially under the East India
Company and later the Crown—systematically dismantled this structure. Tariffs were
imposed on Indian textiles entering Britain, while British cloth faced no such barriers
entering India. Through a combination of fiscal policies and military coercion, Britain
achieved what no market logic alone could have: the collapse of India’s indigenous industry
and the reconfiguration of its economy around the priorities of the British industrial class.

This process of industrial destruction and economic reorientation, as Sven Beckert details in
Empire of Cotton, was not a passive outcome of technological superiority but a violent act of
“war capitalism.” The East India Company’s monopolistic control of trade, its imposition of
monopolies on raw cotton exports, and its use of military force to suppress resistance all
contributed to an environment where Indian weavers were squeezed out of the economy. In
tandem with the rise of British mechanized mills, Indian artisans lost access to raw materials
and markets, and were instead relegated to the lower rungs of colonial agriculture and wage
labor. Beckert’s analysis shows that this reorganization of global production networks was
made possible not by free-market competition but by the systematic use of state power to
create a capitalist world-economy centered on the British metropolis.

The conditions faced by labor in both Britain and India during this period reflect the core
contradictions of industrial capitalism. E.P. Thompson’s The Making of the English Working
Class provides a powerful framework for understanding how mechanization and factory
production de-skilled workers, imposed rigid time discipline, and subjected labor to new
forms of exploitation. British workers in Lancashire mills suffered long hours, dangerous
conditions, and economic precarity, even as the country’s wealth appeared to rise. But in the
Indian case, these same dynamics were compounded by colonial rule. Indian workers had no
effective labor representation, no recourse to regulation or reform, and no political rights to
shape their own futures. The penal codes that criminalized breach of labor contracts, as
detailed in the Hota Answer, further entrenched coercion and reduced labor to a disposable
input in the imperial economy. While both British and Indian workers were victims of
capital’s logic, the Indian working class faced an additional layer of racial and colonial
domination.

The transformation of India into a raw material appendage of Britain is especially visible in
the shift from artisanal production to export agriculture. The expansion of cotton cultivation
in India was accompanied by declining food production, rural indebtedness, and ecological
degradation. Farmers were pushed—by revenue demands and market incentives—into
growing cash crops for export rather than food for subsistence. The vulnerability of this
system was exposed during periodic famines, when colonial officials, guided by laissez-faire
orthodoxy and detached from local realities, refused to intervene. The railway system,
celebrated as a modern infrastructure by colonial apologists, facilitated the movement of
cotton to ports while failing to distribute food in times of scarcity—an example of how
colonial infrastructure often deepened, rather than alleviated, suffering.

While cities like Bombay and Ahmedabad did witness the rise of textile mills in the late
nineteenth century, this development was not a sign of autonomous industrialization. As
Amiya Kumar Bagchi notes, even when Indian entrepreneurs entered the cotton industry,
their operations remained tied to British capital and constrained by colonial financial
structures. The mill system replicated many of the exploitative features of British factories:
long working hours, child labor, overcrowded housing, and dangerous conditions. Yet unlike
in Britain, where labor reforms slowly emerged under pressure from unions and political
agitation, colonial India offered no such protections. Strikes were frequently suppressed by
police or military force, and labor organizing was viewed as subversive.

Tirthankar Roy provides a counterpoint to this narrative by arguing that internal factors—
technological stagnation, caste rigidity, and institutional inertia—also contributed to India’s
industrial decline. While Roy’s intervention is important in disaggregating the causality of
deindustrialization, it does not dilute the centrality of colonial policy in shaping India’s
economic trajectory. British policies created an environment in which adaptation was
discouraged, and capital accumulation was redirected outward rather than reinvested. Indian
producers may have lacked certain advantages, but they were also systematically denied the
tools and autonomy to develop them. Colonialism did not merely respond to
underdevelopment—it created and sustained it.

The cotton industry thus serves as a paradigmatic case of what Marx described as
capitalism’s dependence on “primitive accumulation”—the expropriation of land, labor, and
resources through non-market means. India’s cotton economy was violently subordinated to
British industrial needs. Its workers were driven from artisanal autonomy into agricultural
servitude or urban exploitation. Its merchants were replaced by British firms, and its capital
was siphoned to London. This transformation was accompanied by a cultural and ideological
project that celebrated British industry as the pinnacle of civilization while portraying Indian
economies as backward and inefficient. Such narratives provided the moral cover for policies
that devastated millions.

Ultimately, the story of cotton under British colonialism is not simply a chapter in economic
history—it is a cautionary tale about the entanglement of capitalism, empire, and inequality.
It reveals how development in one part of the world can be predicated on underdevelopment
in another. It shows that technological progress, when yoked to imperial power, can generate
systems of exploitation that are global in scope and generational in consequence. And it
reminds us that the fabrics of everyday life—shirts, saris, uniforms—are often woven with
threads of violence, resistance, and profit.

In the contemporary moment, as global supply chains continue to exploit labor across the
Global South, the lessons of colonial cotton remain urgent. They challenge us to rethink
narratives of progress and to recognize that economic justice requires not only innovation but
the dismantling of historical structures of inequality. To unpick the seams of colonial
capitalism is not merely to understand the past—it is to demand a different future.

Comparative Part

British colonialism in India was not simply a political imposition; it was a profound
economic reordering built on the logic of capitalist accumulation. The industries of coal,
railways, and cotton, though materially distinct, were unified by their role in serving imperial
interests at the cost of indigenous development. When viewed together, they reveal how
British rule fused resource extraction, infrastructural transformation, and industrial disruption
to consolidate an exploitative imperial economy.

Cotton, perhaps the earliest site of imperial economic intervention, exemplifies how
colonialism dismantled existing industries and realigned them toward British needs. India’s
thriving textile economy, rich in artisanal skill and international demand, was systematically
undermined through tariffs, monopolies, and market manipulation. Indian weavers were
displaced, forced either into poverty or into exploitative mill labor, while raw cotton was
redirected to Lancashire’s factories. Here, technological backwardness was not the cause of
decline but the result of deliberate policy choices that kept India dependent and
deindustrialized.

Railways, often mythologized as a “gift” of colonial rule, were instead a powerful vehicle for
deepening this dependency. Built through British capital and guaranteed returns, the railways
did not serve Indian development but connected interior resource zones—cotton fields, coal
mines—to port cities for export. Their construction reshaped India’s economy around the
needs of Britain’s industrial and military apparatus. While they enabled internal migration
and market integration, they also intensified the scale and reach of colonial extraction. The
railways made famines deadlier by facilitating grain exports during scarcity, and they
consolidated state control by enabling swift military deployment.

Coal, the literal fuel of the industrial age, completed this triad of imperial infrastructure. It
powered the railways and the looms, yet its extraction in India followed the same grim logic
of imperialism. British firms dominated ownership, while Indian miners laboured under
harsh, often deadly conditions. Legal structures ensured their disposability—workers were
criminalized for seeking better terms, and labor unrest was met with repression. Like cotton
and railways, coal was priced and circulated in ways that prioritized British industry over
Indian development, reinforcing colonial economic asymmetry.

Across all three sectors, the Indian worker—whether weaver, collier, or railway labourer—
was the figure most profoundly affected. In each case, labor was rendered cheap, replaceable,
and heavily surveyed. And in each, the profits flowed outwards, not into Indian reinvestment
but into British capital markets. What emerges, then, is not a set of separate stories, but a
single system—colonial capitalism—that used infrastructure, industry, and labor policy to
extract value while suppressing autonomy.

Together, coal, railways, and cotton offer a panoramic view of how the British Empire
restructured India to serve the material needs of its metropole. They are not only case studies
in exploitation but enduring metaphors for the colonial condition—where development was
uneven, progress was extractive, and prosperity was always elsewhere.