Colonial Rule and Its Effects on India's Rural Economy

India had the largest industries than any other country in the world was a major exporter in the pre-colonial times (1 A.D. – 1700 A.D). India had its great manufacturing centers apart from being agriculturally fertile and India's handlooms experts were prized in Asian and European markets.

But to help British manufacturers from Manchester, the British followed a policy of heavy taxation of Indian imports (30%) while exporting cheap mill-manufactured cloth on no taxation basis, to India and this effectively finished off Indian indigenous cloth manufacturers and made India a supplier of raw materials to the British cloth industries at the same time. the cotton mills and factories could not compensate for the destruction of the handloom industry in India.

Pandit Jawaharlal Nehru wrote (in The Discovery of India)” that the British de-industrialized India and this was the fundamental cause of the appalling poverty of the Indian People and it is of comparatively recent origin”. A review of the decline of Indian industries reveals that the destruction of the Jagirdars (who were the Mughal ruling class and who had to be destroyed by the British to legitimize their rule) ensured that the market for luxury goods was also destroyed (fine muslins, jewelry, silk and other fabrics, footwear, decorative weapons etc.). The export market for these goods was also a lot due to fashion changes in Europe after 1815. Also massive imports of cheaper textiles from Britain supplied about 60% of Indian cloth consumption and destroyed the handloom industry( a secondary source of income for rural women) as these mill- woven clothes were cheaper and of better quality than the handloom clothes.

A review of Indian exports revealed that cotton goods export dominated till 1800 and then started falling and the East India Company had to search for additional revenues and thus resorted to exports of raw materials like sugar, silk, indigo and saltpeter and after 1850, also tea and jute and from the 1860's onwards, grain exports, hides + skins, oil cakes were also exported. The Second World War gave a tremendous boost to Indian industry but there was not much increase in capacity due to non- availability of capital goods. Indian traders and industrialists did emerge but they were dominated by British corporates in the major sectors like shipping, insurance, banking, coal, plantation crops and jute. Indian cloth declined in quality and could not compete with China and Japan who earlier depended heavily on Indian cloth imports. Thus, Indian industry could not develop much due to the general level of poverty, poor domestic market sizes, lack of political will by the Government which did not give any preferential treatment to local industries, neither created development banking institutions nor created engineering colleges and industrial plants.

Also, impoverished agricultural laborers without land migrated to towns and cities and became a cheap source of unskilled labor for factories/urban India. (Roy, 1999).