An analysis of the process of economic change in modern India is central to an understanding of the country’s history over the last hundred years. Numerous specialist studies exist on some part of this process on agricultural development in a peasant society, the imperial impact on colonial income, industrialisation and business history, the implementation of state planning after 1947, and the coming of the ‘green revolution’ to South Asia. In this volume in The New Cambridge History of India Dr Tomlinson draws together and expands upon the disparate literature to provide a comprehensive account of the economic history of colonial and post-colonial India.

He examines the debates over imperialism, development, and underdevelopment, and sets them in the context of historical change in agriculture, trade and manufacture, and the relations between business, the economy and the state. What emerges is a picture of an economy in which some output growth and technical change occurred both before and after 1947, but in which a broadly based process of development has been constrained by structural and market imperfections, the manipulation of social and political power to distort access to economic opportunity and reward, shortages of essential resources, including foreign exchange, and inappropriate and debilitating government policies. Dr. Tomlinson argues that India has thus had an underdeveloped economy, with weak market structures and underdeveloped insti- tutions, which has in turn profoundly influenced the social, poli- tical and ecological history of South Asia.

The Economy of Modern India, 1860-1970 offers a concise and coherent account of the characteristics and performance of the modern Indian economy and will be widely read by students and specialists of South Asian studies, development economics and economic history.

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THE NEW CAMBRIDGE HISTORY OF INDIA

The Economy of Modern India, 1860-1970

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THE NEW CAMBRIDGE HISTORY OF INDIA

General editor GORDON JOHNSON

President of Wolfson College, and Director, Centre of South Asian Studies, University of Cambridge

Associate editors C. A. BAYLY

Vere Harmsworth Professor of Imperial and Naval History, University of Cambridge, and Fellow of St Catharine’s College

and JOHN F. RicHarpDs Professor of History, Duke University

Although the original Cambridge History of India, published between 1922 and 1937, did much to formulate a chronology for Indian history and describe the administrative structures of government in India, it has inevitably been overtaken by the mass of new research over the past fifty years.

Designed to take full account of recent scholarship and changing conceptions of South Asia’s historical development, The New Cambridge History of India will be published as a series of short, self-contained volumes, each dealing with a separate theme and written by a single person. Within an overall four-part structure, thirty-one complementary volumes in uniform format will be published. As before, each will conclude with a substantial bibliographical essay designed to lead non-specialists further into the literature.

The four parts planned are as follows:

I The Mughals and their contemporaries II Indian states and the transition to colonialism III The Indian empire and the beginnings of modern society

IV The evolution of contemporary South Asia

A list of individual titles in preparation will be found at the end of the volume.

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THE NEW CAMBRIDGE HISTORY OF

INDIA

III - 3

The Economy of Modern India, 1860-1970

B. R. TOMLINSON

UNIVERSITY OF STRATHCLYDE

CAMBRIDGE

6) UNIVERSITY PRESS

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Published by the Press Syndicate of the University of Cambridge The Pitt Building, Trumpington Street, Cambridge cB2 1RP 40 West 20th Street, New York, ny 10011-4211, USA 10 Stamford Road, Oakleigh, Melbourne 3166, Australia

© Cambridge University Press 1993

First published 1993 First paperback edition published 1996

A catalogue record for this book is available from the British Library

Library of Congress cataloguing in publication data

Tomlinson, B. R. The economy of modern India, 1860-1970 / B. R. Tomlinson p- cm.-(The New Cambridge History of India : iti, 3)

Includes bibliographical references and index. ISBN O §21 36230X 1. India —- Economic conditions. 2. India History rgth century. 3. India History 2oth century. 1. Title. 11. Series. DS436.N47_ 1987 pt 3, vol. 3 [HC435] 954 s—dc20 [330.954] 92-28696 cIP

ISBN O §21 36230 x hardback ISBN O 521 58939 8 paperback

Transferred to digital printing 2003

CE

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CONTENTS

List of figures page viil List of maps ix List of tables Xl General editor’s preface Xill Preface XV

1 Introduction: development and I

underdevelopment in colonial India

2 Agriculture, 1860-1950: land, labour 30 and capital

3 Trade and manufacture, 1860-1945: 92 firms, markets and the colonial state

4 The state and the economy, 156 1939-1970: the emergence of economic management in India

5 Conclusion 214 Bibliographical essay 219 Index 232

vil

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FIGURES

2.1 Gross area under main food

and non-food crops, 1907-25 page 60 2.2 Indices of prices of exported and

imported goods, 1860-1940 62 4.1. Growth of foodgrain output

and population, 1949-73 200

Figure 2.1 is taken from Report of the Royal Commission on Agriculture in India (1928), p. 69; figure 2.2 from Michelle McAlpin, ‘Price Movements and Fluctuations in Economic Activity’, Cambridge Economic History of India, Volume II, graph 11.3; figure 4.1 from Walter C. Neale and John Adams, India: the Search for Unity, Democ- racy and Progress, 2nd edn, New York, 1976, figure 10.

Vill

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MAPS

1.1. Indiain 1938-9 page xvi-il

1.2(a) Population, rates of increase by 6 district, 1891-1941

1.2(b) Population densities by 6 province, 1941

2.1. Average annual rainfall and 39 staple foodgrain production, 1938-9

2.2. Systems of land revenue 46 settlement, 1872

2.3. Spatial reorganisation of 56 colonial India

2.4 Main-line railways, 1947 57

2.5(a) Types of irrigation at work in 84

India, by district, c. 1940

2.5(b) Percentage of agricultural land 84 irrigated, by district, c. 1940

3.1 Industrial location, India and 96 Pakistan, 1947

4.1 India: political divisions, 1978 158

4.2 Sectoral distribution of labour 159 force and per capita income by States, 1961

Maps. 1.1, 1.2(b), 2.1(i), 2.4 and 3.1 are based on, or taken from, material in C. Collin Davies, An Historical Atlas of the Indian Peninsula, Oxford University Press, Indian branch, n.p., 1949; maps 1.2(a), 2.1(i1)}-(iv), 2.5(a), 2.5(b) and 3.1 on O. H. K. Spate, India

1X

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MAPS

and Pakistan: A General and Regional Geog- raphy, London, 1957; map 2.3 on Davies, Historical Atlas, and David E. Sopher (ed.), An Exploration of India: Geographical Per- spectives on Society and Culture, London, 1980, fig. 9; map 4.1 on Walter C. Neale and John Adams, India: the Search for Unity, Democracy and Progress, 2nd edn, New York, 1976, figure 2; and maps 2.2 and 4.2 on Dharma Kumar, with Meghnad Desai, (ed.), Cambridge Economic History of India, Volume II, Cambridge, 1983, maps 3 and 12, which are based on Joseph E. Schwartzberg, (ed.), A Historical Atlas of South Asia, Chicago, 1978.

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TABLES

1.1 Demographic background, page 4 India 1871-1971

1.2 Estimates of Indian national j product, 1900-46

1.3 India, annual balance of 16 payments on current account, 1869-70 to 1894-8

2.1. Composition of Indian exports, 52 1860-1 to 1935-6

2.2 Geographical distribution of 54 India’s foreign trade, 1860-1 to 1940-1

2.3. Export and import prices in 69 India, 1927-36

2.4 Rates of population growth: 74 Indian subcontinent and zones, 1871-1951

3.1 Share of net output of all large- 93

scale manufacturing production by selected industries, 1913-47

3.2 Share of particular industries in 94 total manufacturing employment in large perennial factories in India, 1913-47

3.3. Indian cotton textiles, 1880-1930 107

3.4 Indian textile production, market 110 shares, 1931-2 to 1937-8

3.5 Indices of domestic economic 137 activity, 1920-1 to 1938-9

x1

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LIST OF TABLES

3.6 Partial estimate of allocation of 139 internal savings in India, 1930-9

3-7. Index numbers of output by 140 industry, 1930-1 to 1939-40

3.8 Central and provincial tax 150 revenues, selected years 1900-1 to 1946-7

3.9 Breakdown of central and 151

provincial government expenditure for selected years, I1900~I to 1946-7 3.10 Government of India expenditure 153 and liabilities in London, 1899-1900 to 1933-4 4.1. Population, area, agricultural 157 labour, foodgrains output and literacy rates: regional distribution, 1951

4.2 Composition of aggregate 176 investment, India 1950-1 to 1968-9

4.3 Plan outlay and its finance, 178 1951-69

4.4. Rates of growth of agricultural 179

production, industrial production and national product, India 1950/1-1971/2

4.5 Rates of growth of output, India 180 1950-65 and 1965-72

4.6 Size distribution of operational 194 and ownership holdings in India, 1961-2

XH

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GENERAL EDITOR’S PREFACE

The New Cambridge History of India covers the period from the beginning of the sixteenth century. In some respects it marks a radical change in the style of Cambridge Histories, but in others the editors feel that they are working firmly within an established academic tradition.

During the summer of 1896, F. W. Maitland and Lord Acton between them evolved the idea for a comprehensive modern history. By the end of the year the Syndics of the University Press had committed themselves to the Cambridge Modern History, and Lord Acton had been put in charge of it. It was hoped that publication would begin in 1899 and be completed by 1904, but the first volume in fact came out in 1902 and the last in 1910, with additional volumes of tables and maps in 1911 and 1912.

The History was a great success, and it was followed by a whole series of distinctive Cambridge Histories covering English Litera- ture, the Ancient World, India, British Foreign Policy, Economic History, Medieval History, the British Empire, Africa, China and Latin America; and even now other new series are being prepared. Indeed, the various Histories have given the Press notable strength in the publication of general reference books in the arts and social sciences.

What has made the Cambridge Histories so distinctive is that they have never been simply dictionaries or encyclopaedias. The Histories have, in H. A. L. Fisher’s words, always been ‘written by an army of specialists concentrating the latest results of special study’. Yet as Acton agreed with the Syndics in 1896, they have not been mere compilations of existing material but original works. Undoubtedly many of the Histories are uneven in quality, some have become out of date very rapidly, but their virtue has been that they have consistently done more than simply record an existing state of knowledge: they have tended to focus interest on research and they have provided a massive stimulus to further work. This has made their publication

X1il

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GENERAL EDITOR’S PREFACE

doubly worthwhile and has distinguished them intellectually from other sorts of reference book. The Editors of the New Cambridge History of India have acknowledged this in their work.

The original Cambridge History of India was published between 1922 and 1937. It was planned in six volumes, but of these, Volume 2 dealing with the period between the first century a.p. and the Muslim invasion of India never appeared. Some of the material is still of value, but in many respects it is now out of date. The last fifty years have seen a great deal of new research on India, and a striking feature of recent work has been to cast doubt on the validity of the quite arbitrary chronological and categorical way in which Indian history has been conventionally divided.

The Editors decided that it would not be academically desirable to prepare a new History of India using the traditional format. The selective nature of research on Indian history over the last half-century would doom such a project from the start and the whole of Indian history could not be covered in an even or comprehensive manner. They concluded that the best scheme would be to have a History divided into four overlapping chronological volumes, each containing about eight short books on individual themes or subjects. Although in extent the work will therefore be equivalent to a dozen massive tomes of the traditional sort, in form the New Cambridge History of India will appear as a shelf full of separate but complementary parts. Accordingly, the main divisions are between I The Mughals and their Contemporaries, II Indian States and the Transition to Colonialism I The Indian Empire and the Beginnings of Modern Society, and IV The Evolution of Contemporary South Asia.

Just as the books within these volumes are complementary so too do they intersect with each other, both thematically and chronologically. As the books appear they are intended to give a view of the subject as it now stands and to act as a stimulus to further research. We do not expect the New Cambridge History of India to be the last word on the subject but an essential voice in the continuing debate about it.

XIV

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PREFACE

The writing of this book has benefited enormously from the criticism, advice and companionship over the years of a large number of fellow scholars, many of whom have produced the work that is discussed in its pages including Amiya Bagchi, Chris Baker, Crispin Bates, Chris Bayly, Sugata Bose, Raj Brown, Raj Chandavarkar, Neil Charlesworth, Robi Chatterji, Kirti Chaudhuri, Pramit Chaudhuri, Clive Dewey, Omkar Goswami, Partha Gupta, John Harriss, Dharma Kumar, Michelle McAlpin, Morris David Morris, Aditya Mukherji, Terry Neale, Rajat Ray, Tapan Raychaudhuri, Peter Robb, Sunanda Sen, Colin Simmons, Burton Stein, Eric Stokes, Dwijendra Tripathi, Marika Vicziany and David Washbrook. I[ am also grateful for the tolerance and confidence of Gordon Johnson, who has waited for this part of the New Cambridge History of India with grace and patience. The text was begun while I was a Visiting Senior Research Fellow in the Department of Economic History at the University of Melbourne during the antipodean winter and spring of 1990 a visit which was made enjoyable, stimulating and productive by the efforts of many people, notably David Merrett, Boris Schedvin and Allan Thompson. My colleagues at Birmingham, especially Peter Cain, Rick Garside, Tony Hopkins, Leonard Schwarz, Henry Scott and Gerald Studdert- Kennedy, have provided constant encouragement and support, while Suzy Kennedy made learning word-processing easy. Above all, my family Caroline, Sam, Charlie, Martha and Edward - made possible the effort that created this book, which I dedicate to them in return.

March 1992 B.R. Tomlinson

XV

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Indian provinces

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Map 1.1 India in 1937-8 xv1 XVIi

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CHAPTER 1

INTRODUCTION: DEVELOPMENT AND UNDERDEVELOPMENT IN COLONIAL INDIA

Assumptions about the nature and course of Indian economic history le at the heart of many analyses of South Asia’s recent past. Accounts of peasant society, of political mobilisation, of imperial policy, of the social relations of caste, class and community, all include fundamental hypotheses and expectations about the nature of economic structure and change over time, and the relations between producers, con- sumers and the state. Furthermore, the whole sub-discipline of devel- opment economics, at crucial stages in its evolution, has drawn heavily on the Indian example in stressing the destructive effects of imperialism, for example, or the mechanisms by which government planning can mobilise savings in poor economies. Modern India is a country where economic history is important, where current issues and problems, and many of the institutions and systems that shape the contemporary economy itself, are closely linked to the legacy of the past.

The wide spread of interest in our subject makes coherent generali- sation about it more difficult. Accounts of social relations among rural producers, for example, are usually based on very different theories of the nature of economic behaviour than are institutional studies of government tariff policy, or statistically generated estimates of changes in the composition of the gross national product. The most detailed studies of production and consumption at the village level often assume that economic phenomena in India exist only as a func- tion of social and cultural relations. Indeed, many scholars who approach the larger discipline of economic history by way of the history of social and economic structures in South Asia have suspec- ted that accounts of autonomous and self-contained processes of economic development, growth and change in other parts of the world are oversimplified corruptions of a complex reality that has been seen through more clearly in India than elsewhere. In return, those studying the history of economic modernisation in the world as

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THE ECONOMY OF MODERN INDIA

a whole often conclude that South Asia is a special case best firmly shut out of their minds and excluded from their generalisations.

These methodological and conceptual problems are made worse because many of the standard techniques used by economic historians are of limited use in South Asia. Econometric analyses and accounts of the Indian economy can bring precision to some areas of discussion, but so much of the raw data available is misleading, deceptive or partial, with frequent and confusing changes in definitions and cate- gories, that they cannot be used without great care and circumspection. The statistical accretions of the colonial administration often confuse more than they clarify; even where scholars have expended great time and effort in correcting, re-classifying and processing them into a more useful and trustworthy form, the results have often been disputed or ignored. Thus recent attempts to use a wide range of quantitative data and techniques to find definitive answers to old questions about fluctuations in national income in colonial India, about access to subsistence in famine conditions for different rural social groups, about the level of ‘de-industrialisation’ in the nineteenth century, about changes in the size and distribution of land-holdings, or about the incidence of poverty since Independence, have convinced few sceptics. One econometric skill well-developed in all South Asianists is the ability to expose the fragility of data they wish to disbelieve. These problems are not confined to quantitative studies; much of the qualitative material collected by British administrators in India and other contemporaries is also based on misunderstandings, biased perceptions and limited perspectives. We cannot write an economic history of modern India by simply letting the data speak for them- selves.

Such difficulties make it hard to produce a convincing overall narrative account of what happened to the Indian economy in the nineteenth and twentieth centuries. Indeed, it is easy to assume that the Indian economy itself is a category that does not have much meaning. Scholars of all persuasions unite in drawing attention to our ignorance about how the economy of the subcontinent fitted together as a whole, expecially what the extent and nature of wide-reaching capital and labour markets in the colonial period might be. Regional specialists often argue that the colonial South Asian economy should be seen as a weakly connected conglomeration of local networks, some of which

2

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INTRODUCTION

have displayed considerably growth and dynamism, but which have been held back by transfers to less fortunate regions. At the local level many economic systems seem self-contained, and to be regulated by social and cultural instruments that deny the very possibility of even a region-wide network of exchange and factor mobility. In addition, the definitions and expectations of market and institutional relations employed by individual historians are often determined by ideology, while the task of completing an aggregative analysis of a large number of local cases each differing slightly in detail makes patterns of change over time difficult to detect. The problems that Vera Anstey high- lighted in 1929 in the preface to her book, The Economic Development of India, are still with us today:

Much of the best work on Indian economic topics is, naturally, limited to the study of some particular problem or particular district, and, in addition, whether deservedly or not, has often been suspect, on account of its definitely official or anti-British origin, as the case may be.!

The conventional indicators of the progress and performance of the Indian economy over the last fifty years or so of colonial rule are summarised in tables 1.1 and 1.2. These indicate that rates of popu- lation increase fluctuated considerably before 1921 (reflecting prob- lems of enumeration, in part, but also the effect of famine and epidemic disease), and then began to rise consistently as a result of falling death-rates. Levels of literacy, urbanisation and life expectancy were low in the late nineteenth century, and again increased slowly but steadily over the course of the twentieth century, especially after Indian independence in 1947. Population densities varied across differ- ent geographic regions and demographic zones of the subcontinent, as shown in map 1.2, with the heaviest concentrations in the great river deltas of eastern and south-eastern India, and along the alluvial plain watered by the Ganges and Jumna rivers in the north. The performance of the economy in terms of national product and income levels is much more difficult to assess. Table 1.2 compares three alternative recent estimates of national product between 1900 and 1946. Although these

' Vera Anstey, The Economic Development of India, (London, 1929), p. vii.

2 The estimates used in table 1.2 are derived from S. Sivasubramonian, ‘National Income of India, 1900-1 to 1946-7’, Ph.D. dissertation, Delhi School of Economics, 1965, pp. 337-83 A. Maddison, Class Structure and Economic Growth: India and Pakistan since the Moghuls,

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Table 1.1. Demographic background, India 1871-1971

Population Annual Birth rate Death rate Literacy Urban Life India population (per thou)* (per thou)* rate population expectancy at (mil) growth rate % % birth? (%)? (m) (f) (1A) (2A) (3A) (4A) (5A) (6A) (7A) 1871 249.44 - - - - 8.7" - 1881 254.51 9.20 re - - 9.3, - 1891 276.69 0.89 - - 6.1 9.4 - 1901 280.87 O.11 51.4 50.0 6.2 10.0 20.1 21.8 I9It 298.20 0.65 47-7 41.7 7.0 9.4 23.9 23.4 1921 299.63 0.09 49.1 48.6 8.3 10.2 20.1 20.9 1931 332.29 1.05 48.2 37-9 9.2 IL. 28.1 27.8 1941 382.56 1.41 45.0° 31.0° 15.1 12.8 33.0 31.1 (1B) (2B) (3B) (4B) (5B) (6B) (7B) 1951 360.2 1.23 40 27 - 17.3 34.9 32.5 1961 439.0 2.00 42 23 24.0 18.0 41.9 40.6 1971 561.0 2.30 40 16 29.4 19.9 46.4 44.7

* Decade ending with year indicated. > Source as Column 3B and 4B. “includes Burma.

Columns 1A-6A cover Indian subcontinent, excluding Burma, Baluchistan and North-West Frontier Province; Columns 1B-6B, and 7A and 7B cover Indian Union.

Sources:

Cols. 1A-4A, 6A: Leela Visaria and Pravin Visaria, ‘Population (1757-1947), CEH, 2, tables 5.8, 5.13, 5.16 and 5.19.

Cols. 5, 1B-6B: Raymond W. Goldsmith, The Financial Development of India, 1860-1977, New Haven, 1983, table 1-1.

Cols. 7A, 7B: Michelle B. McAlpin, ‘Famines, Epidemics, and Population Growth: The Case of India’, Journal of Interdisciplinary History, 14, 2, 1983, table 3.

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INTRODUCTION

Table 1.2. Estimates of Indian national product, 1900-1946

Constant prices aggregate Constant prices per head

A B Cc A B C I. Indices (1913 = 100) 1900 83 89 85 89 95 91 1913 100 100 100 100 100 100 1920 100 94 96 100 94 95 1929 127 110 126 116 100 LI§ 1939 138 119 134 110 95 107 1946 149 127 142 109 93 104 IL. Rate of growth (%) 1900-13 1.44 0.90 1.26 0.93 0.42 0.74 1914-20 0.03 —0.86 —0.58 —0.05 —0.88 —0.70 1921-29 2.69 1.76 3.06 1.67 0.69 2.14 1930-39 0.82 0.79 0.59 —0.54 —O.51 0.72 1940-46 1.10 0.93 0.63 —0.13 —0.30 —0.41

A: Sivasubramonian (1938-9 prices).

B: Maddison (1938-9 prices).

C: Heston (1946-7 prices).

Source: Raymond W. Goldsmith, Financial Development of India, table 1.2.

differ considerably in the relative shares of the total attributed to agriculture, manufacturing and services, and in the values assigned to each of these components, they do show a certain degree of con- vergence in identifying periods of growth and of stagnation.

The weakness of all these estimates is that we can have no certainty about the history of agricultural output in colonial India, especially the course of yield rates and productivity. The bulk of the Indian population remained employed in agriculture throughout the late nineteenth and early twentieth centuries the percentage of the workforce employed in agriculture may actually have risen very slightly in this period, and remained at over 7o per cent throughout - although the sectoral London, 1971, pp. 167-8; A. Heston, ‘National Income’, in Dharma Kumar with Meghnad Desai, (ed.), Cambridge Economic History of India: Volume 11, c. 1757-c. 1970, (hereafter CEHI, 11) Cambridge, 1984, pp. 398-9. Maddison has updated his estimates somewhat in a

recent article, ‘Alternative estimates of the real product of India, 1900-1946’, Indian Economic and Social History Review, 22, 2, 1985.

5

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CEYLON

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INTRODUCTION

contribution of agriculture to national product probably declined. The most widely accepted set of estimates available (those made by George Blyn in his Agricultural Trends in India, 1891-1947 (1966)) suggests that productivity problems resulted in a clear fall of per capita agricultural output, especially for foodgrains, in the first half of the twentieth century.> The basis of these calculations has often been disputed, and there is some evidence to suggest that under-reporting may have increased as the colonial administration loosened its grip on agricultural taxation in the inter-war period, but even Alan Heston’s more optimistic account of national income and per capita output during the colonial period has concluded that the safest assumption is that aggregate agricultural productivity was static over the period from 1860 to 1950 as a whole, at the levels achieved in the early 1950s. On the basis of this assumption, which he could produce no direct evidence to support, Heston has estimated that real NDP rose by 53 per cent between 1868 and 1912, while population increased by only 18 per cent. Between 1900 and 1947 real NDP per head was virtually stagnant at best (the estimates summarised in table 1.2 all show a slight decline), with any net increase coming almost entirely from the service sector. Heston’s figures also suggest that per capita income rose by over 30 per cent between 1871 and 1911, and then stagnated for the rest of the colonial period. These data make it clear that at the close of the colonial period in 1947 the extent of development in India was still very limited: average per capita foodgrain availability was about 400 grams, the literacy rate was 17 per cent of those over the age of 10, and life expectancy at birth only 32.5 years.* While these indicators have risen somewhat in the forty-five years since Independence, India’s economy has enjoyed a slower rate of growth than most others in the developing world, and she is still home to a large percentage of the world’s poor.

This evidence, for what it is worth, suggests that there was a distinct but slow-moving process of economic change at work in India in the

3 For a further discussion of this issue, see below pp. 30-2. 4 Heston, ‘National Income’, CEH], 11, pp. 390, 397-9, 410-11.

1.2(a) Population, rates of increase by district, 1891-1941

Data plotted by districts in British Indian provinces, and by similar-size smaller states and agencies. Some of the 1891 data estimated.

1.2(b) Population densities by province, 1941

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THE ECONOMY OF MODERN INDIA

modern period, characterised by minimal improvements in rates of capital and labour productivity and resulting in fluctuating and uncertain patterns of growth. While precise comparisons are not possible, it would appear that crop yields, industrial productivity, and levels of human capital formation have been as low in India as anywhere else in Asia over the last 150 years.> Such conclusions must be treated with care, however. The slight improvement in some indicators of living standards at various times over the last century of the colonial period is not evidence of the beneficial effects of British rule, while the evident poverty of large numbers of the Indian population at Independence does not conclusively prove that imperial- ism was the sole cause of the destitution of its subjects. More importantly, the bird’s-eye view of the structure and characteristics of the Indian economy that can be derived from a very general interpreta- tion of aggregate indicators should not lead us to the view that nineteenth-century India was a ‘traditional’ subsistence economy, awaiting the transforming touch of commercialisation and moderni- sation. Literacy, urbanisation, the growth of national product, improvements in productivity, and the spread of technical change, can only properly be understood in an ecological, social, economic and political context that pays due attention to local details as well as to national averages.

The economic history of India is not a story with a strong plot which lays bare the mechanism by which a set of progressive, or recessive, circumstances came about. The Indian economy of the 1970s was different to that of the 1860s, but it is hard to say that it had arrived at the end of a journey, or had even progressed along a clear path from one point to the other. For this reason it is unwise to introduce the subject by simply laying out for analysis the conventional indicators of performance and structure output, patterns of asset-holding, sectoral employment and so on. Such an approach would underestimate the true extent and complexity of economic, social and political change, minimise regional diversity, and give too firm a meaning to ambiguous and inconclusive statistical and documentary evidence.

5 R. P. Sinha, ‘Competing Ideology and Agricultural Strategy; Current Agricultural Development in India and China compared with Meiji Strategy’, World Development, 1, 6, 1973, and Shigeru Ishikawa, Essays on Technology, Employment and Institutions in Economic Development, Tokyo, 1981, ch. 1.

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INTRODUCTION

While the overall aggregate rate of growth was sluggish and unpredict- able, this does not mean that nothing was happening in the Indian colonial economy. At certain times, in particular sectors and specific regions, there was quite considerable growth in output, associated with capital accumulation by peasants, landlords, merchants, bankers and industrialists, and some investment in productivity- and _profit- enhancing production processes. Some agriculturalists were able to take advantage of increased world demand for crops such as jute, cotton and groundnuts, while Indian businessmen manufactured cotton yarn for export in the nineteenth century and a wide range of products for the domestic consumer market in the twentieth. Whatever the problems of agriculture, rural producers managed to just about sustain a steadily rising population, which increased at an average rate of 0.6 per cent per year between 1871 and 1941, and more rapidly since then. While all the best agricultural land was probably in use by 1900, some colonisation went on until the 1950s, and the area under irrigation almost doubled between 1900 and 1939, and rose sharply after 1947. There is also con- siderable evidence of technical change in agriculture, in handicrafts, and in mechanised industry. The spread of new seeds and crop-strains aided output growth in cotton and groundnuts, for example, while tech- niques such as the transplantation of rice and the ginning of cotton increased yields and marketability. Indian workmen had few difficul- ties acquiring the skills needed to operate modern textile machinery, while the Tata Iron and Steel Company, the premier industrial enter- prise of colonial India, set up a successful Technical Institute in 1921 and an Indian-staffed Research and Control Laboratory in 1937. In handicrafts, fly-shuttle looms and the use of rayon and other artificial fibres broadened the technological base of the handloom weavers in the inter-war years. While demonstration programmes and official research institutes played some part in this process, the chief incentive to technical change was economic. As one government official pointed out to the Indian Famine Commission in 1880, the spread of improved cotton gins in central India and elsewhere was chiefly the result of ‘the first cotton merchant who offered a fraction of an anna more for clean than dirty cotton’, who had done ‘more for Wardha cotton than I, with all the resources of the Government at my back, ever accomplished’.®

© Quoted in D. R. Gadgil, The Industrial Evolution of India in Recent Times, 1860-1939, sth edn, Bombay, 1971, p. 74.

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THE ECONOMY OF MODERN INDIA

This evidence all suggests strongly that some growth, capital accumulation, technical change and innovation occurred in colonial South Asia, but despite these signs of dynamism the Indian economy did not experience anything that can properly be called ‘development’ under British rule. Text-book definitions stress that development is a qualitatively distinctive phenomenon, that should not be confused with the more limited process of output growth; as Gerald Meier has summarised it, in the conventional view:

Development is taken to mean growth plus change; there are essential qualitative dimensions in the development process that extend beyond the growth or expansion of an economy through a simple widening process. This qualitative difference is especially likely to appear in the improved performance of the factors of production and improved techniques of technical change in our growing control over nature. It is also likely to appear in the development of institutions and a change in attitudes and values.”

In addition to improvements in productivity as a result of technical innovation, many development economists stress equity consider- ations as a necessary part of any process of economic change that can properly be labelled development. Thus Meier’s own preferred defi- nition of development is of a ‘process by which the real per capita income of a country increases over a long period of time subject to the stipulations that the number of people below an “absolute poverty line” does not increase and that the distribution of income does not become more unequal.’8 In the setting of densely populated agrarian economies such as those of South, South-East and East Asia, these conditions can only come about if, over time, labour achieves sustained increases in productivity, employment, and returns above subsistence. This definition of development also helps to bring its opposite, underdevelopment, into sharper focus. As Joseph Stiglitz has sug- gested, LDCs (Less Developed Countries) are those in which fewer people than average have the capacity for full personal fulfilment, giving economists and economic historians the task of explaining the reasons for ‘the dramatically different standards of living of those who happen to live in different countries and within different regions within

Gerald M. Meier, Leading Issues in Economic Development, 5th edn, New York, 1989, . 6. 8 [bid.; italics in original.

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INTRODUCTION

the same country’ which Stiglitz has characterised as ‘the most central issue facing most of mankind today.”

For South Asia, then, our problem is to explain an economic history in which technical change and capital accumulation took place, but in which productivity and welfare did not improve very much. Economic historians have found it difficult to explain the absence of development in the modern world, and, like Gerschenkron and Schumpeter, have usually only managed to define ‘backwardness’ in terms of the absence of dynamic features seen in other countries or in the same country at a later date. Those such as Kuznets and Rostow, who have conceptua- lised the process of development as a series of preconditions or stages of growth, offer little help in understanding the history of economies which have failed to pass through the evolutionary processes laid down for them. Lloyd Reynolds’s recent study, Economic Growth in the Third World, 1850-1980, follows Kuznets in distinguishing ‘extensive’ growth, in which population and output are growing at roughly the same rate, from ‘intensive’ growth, in which there is a rising trend of per capita output, and accepts that economies experiencing extensive growth can display economic sophistication and some innovation and institutional change. Thus Reynolds suggests that India in 1947 began intensive growth ‘not from a situation of stagnation, but from an economy visibly in motion’,'° but his account remains too one- dimensional, and too concerned to identify a link between a rising export: GDP ratio and the onset of intensive growth, to be of much use in explaining the South Asian experience.

The descriptions and explanations of the apparent lack of growth and development in the Indian economy produced during the colonial period itself were dominated by the nationalist critique of British rule and the imperial response to it. This debate, which has continued to haunt the modern literature as well, was political in origin, revolving around the question of whether India had suffered or benefitted from British rule. In economic terms it focused attention on the evident poverty of the mass of the Indian people in the late nineteenth century,

9 Joseph E. Stiglitz, ‘Rational Peasants, Efficient Institutions, and a Theory of Rural Organization: Methodological Remarks for Development Economics’, in Pranab Bardhan (ed.), The Economic Theory of Agrarian Institutions, Oxford, 1989, pp. 19-20.

10 Lloyd G. Reynolds, Economic Growth in the Third World, 1850-1980: an Introduction, New Haven, 1985, p. 30.

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and the prevalence of famine in the 1870s and late 1890s, which seemed to suggest that agriculture could not support the population. The nationalist argument, put forward most forcefully by Dadabhai Naoroji, a Parsi businessman and founder of the Indian National Congress, who was elected to the House of Commons to speak for Indian interests in the 1890s, and by R. C. Dutt, who resigned from the ICS to pursue his attacks on the revenue administration of Bengal, focused on the distortions to the Indian economy brought about by British rule, and-by the impoverishment of the mass of the population through the colonial ‘drain of wealth’ from India to Britain over the course of the nineteenth century."!

The nationalist case was underpinned by assertions that the British had destroyed or deformed a successful and smoothly functioning pre-colonial Indian economy in the late eighteenth and early nine- teenth centuries. The coming of British rule was seen to have removed indigenous sources of economic growth and power, and replaced them by imperial agents and networks. This deprived Indian entrepreneurs and businessmen in the ‘modern’ sector of the chance to lead a process of national regeneration through economic development, and also had severe welfare and distributional effects in the ‘traditional’ sector by imposing foreign competition on handicraft workers and forced com- mercialisation on agriculturalists.

As we will see, modern studies of the transition to colonialism in India provide a rather different contrast between the economies of the eighteenth and nineteenth centuries. The Indian economy certainly underwent structural change over the course of the nineteenth century, but the causes and results of this were complex. From recent work on the pre-British economy we know that commercialisation and unequal social structures existed before colonialism, yet although the pre- colonial economy contained nodes of mercantilist growth, their devel- opment and welfare effects remain unclear. Indian capitalists played an active role in helping the East India Company to create its empire in South Asia, and in working with it when it came. While British rule caused a set-back for some activities of Indian merchants and commer- cial capitalists, it did not suppress all of them for long, and may have helped some areas, such as the Gujerati textile centre of Ahmedabad,

1 Dadabhai Naoroji, Poverty and Un-British Rule, London, 1901; R.C. Dutt, The Economic History of India in the Victorian Age, London, 1906.

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INTRODUCTION

which had suffered particularly badly from the consequences of political instability.

The central theme of the nationalist case was the way in which Indian resources were drained off to Britain by the