Phases of Economic Exploitation of India by British and Various Economic Policies

The economic exploitation of India by the British colonial rulers unfolded through distinct phases, each marked by policies and practices that significantly shaped the trajectory of the nation’s economic history. From the initial mercantilist ventures of the East India Company to the more formalized colonial administration, the British implemented a series of economic policies that prioritized their interests at the expense of India’s economic well-being. These phases encompassed exploitative practices such as the drain of wealth, the introduction of land revenue systems, and the promotion of industrialization in Britain at the cost of India’s economic development. Examining these phases provides insight into the complex dynamics that underpinned the economic relationship between colonial powers and their colonies, illuminating the enduring impact of historical exploitation on the economic landscape of modern-day India.

Table of Contents

Phases of Economic Exploitation of India by British

Commercial Capitalism (1600-1800)

The period of Commercial Capitalism, spanning from 1600 to 1800, marked an important phase of economic exploitation by the British in India. During this time, the British East India Company consolidated its presence in India and engaged in profitable trade activities.
The primary objective of the East India Company was to purchase goods such as spices, cotton, and silk from India and sell them at high prices in the British market. This created a favorable trade imbalance for the British, allowing them to amass significant profits. The Company had control over the entire production process, although production was still conducted on a smaller scale compared to later industrialization.
As the demand for profits grew, the merchant entrepreneurs hired more workers, leading to an increase in labor demand. Many individuals shifted from agriculture to industry in search of employment opportunities. This transition from subsistence-oriented production to profit-driven commercialization had significant implications for the Indian economy and society.
The export of Indian goods increased during this period, stimulating production and trade. Towns began to develop as centers of commerce and industry. The commercialization of agriculture and industries brought about notable changes in the economic and social fabric of Indian society.
However, it is important to note that during this phase, economic exploitation was primarily focused on trade and the extraction of resources, rather than large-scale industrialization or structural changes in the Indian economy. The British East India Company, through its control over trade and resources, established a foundation for future phases of exploitation and dominance in India’s economy.

Industrial Capitalism (1800-1860)

During the phase of Industrial Capitalism from 1800 to 1860, the British further exploited India’s economy through the Industrial Revolution and the colonial policies of free trade. This period was characterized by significant advancements in industrial production and the establishment of a complex division of labor.
The Industrial Revolution, which had begun in Britain, brought about radical changes in manufacturing processes and technology. The use of machines and the mechanization of production became prominent features of this era. The British took advantage of these developments and sought to exploit India’s resources and markets for their industrial goods.
Under the policy of free trade, initiated by the Charter Act of 1813, the British focused on expanding industries and intensively commercializing agriculture in India. They aimed to produce raw materials for their industries and convert their colonies, particularly India, into captive markets for their machine-made finished products. This approach disrupted the existing economic structure and had significant consequences for the Indian artisans and weavers.
The intensified competition from British industries led to the decline of indigenous artisans and weavers, who lost both the British and Indian markets. The introduction of machine-made goods from Britain, which could be produced at a larger scale and lower cost, posed a threat to the traditional handloom and cottage industries of India. The British dominance in the market undermined the livelihoods of Indian artisans and weavers, resulting in their marginalization and loss of economic opportunities.
The industrial capitalism phase further entrenched the economic exploitation of India by the British, as they utilized India’s resources and markets to fuel their industrial growth while undermining indigenous industries. This period laid the foundation for the subsequent phases of economic exploitation and dominance by the British in India.

Financial Capitalism (1860-1947)

During the phase of Financial Capitalism from 1860 to 1947, the British further deepened their economic exploitation of India by focusing on financial control and investment in various sectors. This period was characterized by the dominance of financial intermediation, foreign investments, and international competition for colonies.
The British Empire expanded its investments in India during this time, particularly in infrastructure development. One notable example is the construction of railways, which facilitated the transportation of goods and resources for the British colonial administration. Other sectors such as banking, postal services, and telegraph communication also witnessed significant development under British control.
To maintain control over Indian capital and resources, the British implemented the management agency system. This system allowed them to exert influence and exercise control over Indian financial institutions, ensuring that profits and benefits flowed back to Britain. Through this system, the British effectively maintained their economic dominance and exploited Indian resources for the benefit of their economy.
Foreign investments played a crucial role during this phase, as the British sought to extract wealth and resources from India for their financial gain. They encouraged and facilitated investments from British companies and individuals, further consolidating their economic control over India.
The financial capitalism phase also coincided with increased international competition for colonies among European powers. Britain, along with other colonial powers, competed to establish economic dominance and secure resources from their colonies. India, with its vast resources and potential market, became a significant target for British financial investments and economic exploitation.
The economic policies and practices of financial capitalism reinforced the economic subjugation of India by the British. The extraction of wealth, control over capital, and dominance in key sectors of the economy allowed the British to maintain their exploitative grip on India until independence in 1947.
Overall, the phase of financial capitalism solidified the economic exploitation of India by the British, as they leveraged financial control, foreign investments, and international competition to further their interests at the expense of the Indian economy and its people.

Various Economic Policies of the British

Land Revenue Policies

Under British rule, land revenue policies were a significant means of extracting resources and funds from the Indian population. The burden of economic development and financing administrative and military expenses was largely placed on the peasant class.
The British implemented various land revenue systems throughout their rule, with the primary objective of maximizing revenue extraction from agricultural lands. One of the most significant land revenue policies was the Permanent Settlement introduced in Bengal in 1793. This policy fixed the land revenue demand at a perpetual rate, which was to be paid by the zamindars (landlords) who held control over large landholdings. The zamindars, in turn, collected revenue from the actual cultivators, the peasants.
The Permanent Settlement system created a fixed revenue demand regardless of changes in agricultural productivity or fluctuations in crop yields. This often resulted in increased financial burdens on the peasants, as they were subjected to high revenue demands and were vulnerable to exploitation by the zamindars. Many peasants faced economic hardships and were unable to meet the revenue demands, leading to indebtedness and loss of land.
In addition to the Permanent Settlement, other revenue systems such as the Ryotwari and Mahalwari systems were implemented in different parts of India. These systems also aimed at maximizing revenue collection but involved direct interaction between the British administrators and the peasants. In these systems, the British officials assessed the land’s potential and imposed revenue demands directly on individual cultivators.
Regardless of the specific revenue system, the taxation policies imposed a heavy burden on the peasant class. The revenue collected from the peasants was used to finance the administrative machinery of the British colonial government, support the British military presence in India, and generate profits for the East India Company.
The revenue demands were often high, leaving the peasants with little surplus for their own sustenance and economic development. Additionally, the introduction of cash crops and commercial agriculture, encouraged by the British for export purposes, led to a shift in agricultural practices and affected the self-sufficiency of peasant communities.
Overall, the land revenue policies of the British placed a significant economic burden on the peasants, as they were subjected to high revenue demands and exploitative practices by intermediaries. The revenue collection served the interests of the British colonial administration and contributed to the economic exploitation of India under British rule.

Permanent Settlement

The Permanent Settlement, introduced by Lord Cornwallis in 1793 in Bengal and Bihar, aimed to establish a fixed and permanent revenue system. Under this system, the traditional zamindars and revenue collectors were transformed into landlords with absolute ownership rights over the land.
The key objective of the Permanent Settlement was to create a stable revenue source for the British East India Company by fixing the land revenue demand at a perpetual rate. The zamindars, who were granted the status of landlords, were responsible for collecting and paying the fixed revenue amount to the British administration. The revenue demand was typically set at 10/11th of the total collection, leaving the zamindars with one-eleventh as their share.
As a result of this settlement, the inhabitants of the land, who were previously cultivators with customary rights, became mere tenants. Their status changed from independent landholders to tenants who had to pay rent to the newly appointed landlords. The zamindars held significant power over the tenants, as they had absolute ownership rights and the authority to collect rent from them.
The intention behind the Permanent Settlement was to establish a stable and predictable revenue system that would encourage investment in land improvement and increase agricultural productivity. However, the system had several negative consequences. The fixed revenue demand often proved to be exorbitant and inflexible, leaving the zamindars with little incentive to invest in land improvement or provide support to the peasants.
Moreover, the Permanent Settlement led to the concentration of landownership in the hands of a few privileged individuals, the zamindars, while the peasants became economically vulnerable. The peasants, now reduced to the status of tenants, faced high rents and exploitative practices from the zamindars. They often struggled to meet the revenue demands and were at risk of losing their land and livelihoods.
Overall, the Permanent Settlement had significant implications for landownership and the socio-economic structure of Bengal and Bihar. It concentrated power and wealth in the hands of the zamindars, transformed peasants into tenants, and imposed a heavy burden of taxation on the agrarian population. The system contributed to socio-economic inequalities and exploitation within the rural communities affected by the settlement.

Ryotwari System

The Ryotwari system was a revenue settlement system introduced in parts of South India, particularly in the Madras province, during British colonial rule. It was implemented by Thomas Munroe in 1820 as an alternative to the Permanent Settlement.
Under the Ryotwari system, the traditional zamindars were eliminated, and the state directly dealt with the individual cultivators or peasants, known as ryots. The ryots became the proprietors of the land they cultivated and were responsible for paying the land revenue directly to the state.
Unlike the Permanent Settlement, where the revenue demand was fixed and based on a share of the total collection, the Ryotwari system implemented a fluctuating revenue assessment. The land revenue was assessed individually for each ryot based on the nature of the land, its fertility, and the prevailing market conditions. This assessment was conducted periodically, typically once every 20 years.
One of the key features of the Ryotwari system was that the individual ryots had to bear the burden of the entire tax liability. Regardless of the condition of their agricultural yield, whether it was partially or fully destroyed by natural calamities such as floods or droughts, the ryots were still required to pay the fixed tax amount.
This aspect of the Ryotwari system placed a heavy burden on the peasants, as they had to bear the risks and uncertainties associated with agriculture without any relief in their tax obligations. It often led to distress among the farming communities, especially during times of poor harvest or natural disasters.
Additionally, the absence of intermediaries between the state and the ryots meant that the burden of administration and tax collection fell directly on the government officials. This sometimes resulted in excessive exploitation and harassment of the peasants by corrupt or insensitive officials.
While the Ryotwari system aimed to create a direct relationship between the state and the cultivators, it had its shortcomings and often led to agrarian distress. The fluctuating tax assessments and the inability of the ryots to seek relief during difficult times made it a challenging system for the agricultural communities.
Overall, the Ryotwari system had a significant impact on the agrarian structure in South India, transforming the relationship between the state and the peasants and influencing the socio-economic conditions of the region during the colonial period.

Mahalwari Settlement

The Mahalwari Settlement was a land revenue system introduced in the North-Western provinces of British India during the colonial period. It was implemented by Holt Mackenzie in 1822 and later reformed by William Bentinck in 1833.
Under the Mahalwari system, the land was divided into units called Mahals. Each Mahal consisted of one or more villages, and for tax assessment purposes, the entire village or Mahal was treated as a single unit. The responsibility for tax collection was delegated to the village headman or a village committee.
One of the key features of the Mahalwari system was the frequent revision of the tax rates by the state. Unlike the Permanent Settlement or the Ryotwari system, where the revenue demand was fixed or periodically assessed, the Mahalwari system allowed the government to revise the tax rates more frequently. This flexibility in tax assessment aimed to accommodate changes in agricultural productivity, market conditions, and other factors.
The Mahalwari system incorporated elements from both the Zamindari and Ryotwari systems. Like the zamindari system, it recognized the existence of intermediaries such as village headmen who played a role in tax collection and administration. However, unlike the zamindari system, the land remained under the ownership of the individual cultivators, similar to the ryotwari system.
The Mahalwari system aimed to establish a direct relationship between the state and the cultivators while maintaining some level of local administration. It aimed to strike a balance between centralized control and local autonomy by delegating tax collection to the village level.
While the Mahalwari system attempted to address some of the shortcomings of previous land revenue systems, such as excessive exploitation by intermediaries, it still had its limitations. The frequent revision of tax rates could lead to uncertainty for the cultivators, and the burden of taxation often fell heavily on the agricultural communities.
Overall, the Mahalwari Settlement had an impact on land administration and revenue collection in the North-Western provinces during the colonial period. It aimed to strike a balance between central control and local administration while recognizing the individual rights of cultivators.

Other systems

Taluqdari system:

The Taluqdari system was a land tenure system that emerged in the provinces of Oudh (Awadh) and Bengal during the British colonial period. It was a combination of Zamindari management strategies and fiscal policies aimed at raising funds for specific purposes.
After the implementation of the Permanent Settlement, which transformed zamindars into hereditary landowners with fixed revenue obligations, many zamindars established dependent taluqs within their estates. These taluqs were known as Pattani taluq, noabad taluq, and osat taluq.
Under the Taluqdari system, the zamindars granted portions of their zamindari lands to loyal supporters or influential individuals, known as taluqdars. These taluqdars held a higher status within the local hierarchy and were responsible for managing the assigned taluqs.
The purpose of establishing taluqs was twofold. Firstly, it served as a mechanism for the zamindars to delegate the management of specific areas within their estates to trusted individuals, thereby reducing their administrative burden. Secondly, the revenue collected from these taluqs was utilized for specific purposes such as maintaining a standing army or funding infrastructure projects.
The taluqdars enjoyed certain privileges and rights within their assigned taluqs, including the right to collect revenue from the tenants and administer local affairs. However, they were also accountable to the zamindars and had to fulfil their revenue obligations to the higher authorities.
While the Taluqdari system provided a mechanism for the decentralization of authority and local administration, it also resulted in the concentration of power and wealth in the hands of a few taluqdars. This further reinforced the hierarchical structure of the rural society and created a divide between the powerful taluqdars and the agricultural tenants.
The Taluqdari system was specific to the regions of Oudh and Bengal and had its own dynamics and variations. It represented a unique form of land tenure and revenue management during the British colonial era, shaped by the needs and circumstances of the local regions.

System of Malguzari

The Malguzari system was a land tenure system that existed in the former Central Provinces of British India. It had its roots in the revenue farming practices of the Marathas, where individuals known as Malguzars were appointed as revenue farmers.
Under the Malguzari system, the Malguzars were granted proprietary rights over the land and were responsible for the collection of revenue from the peasants. They acted as intermediaries between the British administration and the agricultural communities.
During British rule, the Malguzars were held accountable for revenue collection and were required to pay a fixed amount to the colonial authorities. They had the right to retain any surplus revenue collected after meeting their revenue obligations.
The Malguzari system aimed to streamline revenue collection and establish a clear system of accountability. It provided a mechanism for the British administration to maintain control over revenue generation while utilizing the existing revenue farming structure.
However, the Malguzari system also had its drawbacks. The Malguzars, being revenue farmers, often sought to maximize their profits, leading to the exploitation of the peasants. The system created a burden of high revenue demands on the agricultural communities, which impacted their economic well-being.
Over time, the Malguzari system underwent reforms and changes as the British administration sought to address the issues and improve revenue administration. Eventually, with the implementation of land revenue reforms in the late 19th and early 20th centuries, the Malguzari system was gradually replaced by more standardized land tenure and revenue systems.
The Malguzari system, therefore, represents a specific form of land tenure and revenue administration that existed in the former Central Provinces of British India, where revenue farmers known as Malguzars played a key role in revenue collection and management.

Frequently Asked Questions (FAQs)

Q1: What were the phases of economic exploitation of India by the British?

A1: The economic exploitation of India by the British can be broadly categorized into three main phases:

Mercantilist Exploitation (1600s-1757):
- Answer: During this phase, the British East India Company primarily focused on extracting wealth through trade. They established trading posts and monopolized key commodities, exploiting Indian resources for profit. The policies were driven by mercantilism, emphasizing a favorable balance of trade for the British Empire.
Colonial Exploitation (1757-1858):
- Answer: The Battle of Plassey in 1757 marked the beginning of direct British control over parts of India. The exploitation intensified as the British colonial administration imposed heavy taxes, manipulated land revenue systems, and deindustrialized India to favor British industries. The economic policies aimed at enriching Britain at the expense of Indian economic well-being.
Imperial Exploitation (1858-1947):
- Answer: Following the Indian Rebellion of 1857, the British Crown took direct control of India. This phase witnessed the ruthless exploitation of India’s resources for the benefit of the British Empire. The imposition of heavy land taxes, the destruction of indigenous industries, and the introduction of exploitative economic policies, such as the Permanent Settlement and the Deindustrialization process, left a lasting impact on India’s economy.

Q2: What were the key economic policies implemented by the British in India?

A2:

Permanent Settlement (1793):
- Answer: The Permanent Settlement introduced by Lord Cornwallis aimed to fix land revenue and create a stable source of income for the British. However, it ended up burdening Indian landholders with high taxes, causing widespread impoverishment.
Doctrine of Laissez-Faire (19th Century):
- Answer: The British implemented a laissez-faire economic policy in India, advocating minimal government interference in economic affairs. While this approach favored British industrial interests, it hindered India’s economic development by neglecting infrastructure, education, and industrialization.
Railway Construction (19th Century):
- Answer: While the British built an extensive railway network in India, ostensibly for economic development, it primarily served British interests by facilitating the efficient transportation of raw materials to ports for export. The benefits to the local economy were often secondary.

Q3: How did British economic policies contribute to the deindustrialization of India?

A3: British economic policies, such as heavy taxation, preferential treatment of British goods, and the imposition of tariffs, significantly contributed to the deindustrialization of India. Cottage industries, which were the backbone of the Indian economy, were severely impacted as British goods flooded the market, making it difficult for Indian products to compete. Additionally, the British discouraged indigenous industries to ensure a captive market for British goods, further weakening India’s economic self-sufficiency. The resulting deindustrialization had long-lasting effects on the Indian economy, leaving it in a state of dependency and underdevelopment.

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Phases of Economic Exploitation of India by British and Various Economic Policies – Modern History Notes