Colonial Rule and Its Effects on India's Rural Economy

Napoleon described the British as a nation of shopkeepers; the British entered India during Mughal rule as traders and were determined to obtain a pole position over the Portuguese, the Dutch, the Danes, and the French. Due to astute leadership and the inability of other colonial powers and Indian rulers to counter the strong British navy and Company traders, the British gained control over India after the Battles of Buxar and Plassey. The Indians should remain grateful to the British for their pragmatic rule. They did not attempt to ensure cultural domination like the French and Americans, religious fanaticism of the Spanish and Portuguese, or the harsh domination of the Belgians, Dutch, Germans, and Italians. The British largely did not interfere with Indian traditions unless their economic/trading interests were affected.

They brought in the postal system, telegraph system, railways, and water-borne trade (river/marine shipping) to a lesser extent to further their trading interests. Later they treated India as a monopolistic market for British manufactured goods and a supplier of raw materials. But the British created a monopoly for banking, plantations, shipping, export trade, etc. The British balance of payments was favorable vis-à-vis India and the army and the civil services were totally ruled by the upper class of British society. Their greatest contribution was in education, but they largely ignored technical education. 

They generally did not hamper Indian economic development. They allowed an Indian indigenous trading system, the Hundi system and money-lenders, but they did interfere wherever there was a conflict with their economic security interest. The civil service was efficient and not corrupt, but there was an interest in development, due possibly to cost consideration, another lasting legacy was the irrigation system. The Mughals only irrigated 5% of Indian agriculture (by tanks/canals), but in 1947 about 35% of India had irrigated agriculture when the British left (Naoroji, 1993).

As long as the East India Company ruled (1757-1857) the British went about grabbing kingdoms, but after 1857, this policy was discontinued under the Crown. An elite lot were able to access western education while the masses had no access to education and literacy was only 12% in 1947. During Company rule, some British did many and merge into Indian systems. But after Crown rule this was frowned upon. They become more insular and despised Indian cultures, customs, and education as inferior. This also enabled them to rule over India, with a handful of British civil and army officials, and was never more than 0.05% of the population. Even the Muslim rulers in India had more numbers. R.C Dutt, Dadabhai Naoroji wrote extensively about heavy British taxes and siphoning off of India's wealth. However, it must be noted that the Mughals exacted land revenue of 16% of the national income while the British exacted land tax at 1% of the national income and the total tax burden was low at 6%. Those who owned land benefitted from this benign tax regime but benefits were not passed on to the masses.

Social Structure at the end of Mughal at British Rule

The British inherited the Mughal system of tax administration as formulated by Raja Todar Mal and destroyed the existing administrative system as the ruling class or Jagirdars were abolished (except in princely states); but the tax collection and the zamindars' rights were reinforced by giving them hereditary status if they paid their taxes while their judicial and administrative functions were taken away. This enabled the British to do away with the military power of the Jagirdars and balanced this divide-and-rule policy by strengthening the zamindars who became richer and more powerful under the British. In 1772, there were only 100 zamindars in Bengal but in 1872, there were 154200 zamindars of whom 11% had over 500 acres of estates, each.

The social structure did not change radically under the British who were basically status-quoists and favored the ‘tenancy rights' approach. The British had no interest in land reforms and were more concerned with guaranteed revenue by way of taxes. They did not wish to create political disturbances by increasing agricultural productivity or bringing about agrarian reforms; moneylenders proliferated during the colonial regime as funds from banks were available only for corporates and for plantation owners and not for the smallholder farmers.

Land values sharply rose due to the lowering of taxes and increasing land scarcity due to the population boom. The Mughals exacted 30% of the crop value as revenue while in 1947, land tax was only 2% of agricultural income. This was more so in Bengal, Bihar and Orissa (due to the Permanent Settlement in 1793) but also true in other areas.

But this created an income divide in the villages and rapidly growing classes of agriculture laborers as traditional rights were curtailed, rent was increased arbitrarily by zamindars and land became costlier. The colonial government did not provide credit or extension services or research, but did boost canal irrigation and tube-wells irrigation. Inefficient Jagirdars were rooted out as also inefficient zamindars, due to their increased dependency on moneylenders.

Productivity and savings may have been increased but not much. Wastelands were taken up for development and to feed a rapidly growing population which increased from 165 million in 1757 to 420 million in 1947. Irrigation was concentrated in Punjab and Sind as cultivable land had to be provided to retired army-men which would act as a buffer zone to the Afghan Raiders. Besides, this led to increased land revenue and a hedge against starvation/ famine. Due to the Indus Valley irrigation system, lands which were deserts now became fertile and produced wheat and cotton for exports.

To encourage trade, substantial improvements in transportation systems helped the cash crops which the British encouraged due to the plantations developed for jute, indigo, tea and sugar all of which contributed to export increases and incomes but which did not boost agriculture as such. Though yields did increase, the farmers stuck to subsistence farming and did not go in for scientific agriculture. In view of the high domestic demand, export earnings were limited while in other Asian countries like Ceylon, Burma and Thailand, the enlargement of international markets was a major stimulus to agricultural incomes.

There is no data to show that agricultural productivity rose or fell. It can be assumed that it remained stagnant, as was the case during Mughal rule. Famines in 1876-78 and 1899-00 killed millions of poor rural people. Also, the bubonic plague in the 1890s and the influenza epidemic in 1919 were catastrophic. Famines in the 19th century had an impact, but the population remained static because they could use the railways/roadways to transport food and water from other regions.

Better medical facilities, better food availability, and relative peace during British rule allowed the Indian population in 1947 to be 2.5 times the population in 1757. Indian agriculture did not prosper, but the landlords did prosper under British colonial rule as did zamindars and money lenders.