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Indian Economic Policy

Notes The consequences of the various forms of exploitation were that :
(i) India remained primarily an agricultural country and its agriculture became
commercialised to serve the interests of Great Britain by exporting tea, coffee, spices,
oilseeds, sugarcane and other foodstuffs, besides other raw materials.
(ii) India which was an industrially advanced country during the 16th and 17th century was
not permitted to modernize her industrial structure during the 18th and 19th century.
Her handicrafts were destroyed and she became an importer of manufactured goods.
(iii) The British employed the policy of discriminating protection along with imperial preference
to have complete control over the Indian market. This also helped to provide safe and
secure avenues for the British investors in India.
(iv) The British developed the economic infrastructure in the form of railways and irrigation
and electricity works with a view to promote foreign trade and exploit India’s natural
resources to their advantage. Direct British investment was made in consumer goods
industries like tea, coffee and rubber plantations, but no effort was made to develop heavy
and basic industries.
(v) The Managing Agency System did help to promote consumer goods industries in the
initial phase, but became exploitative in character later. It appropriated nearly 50 per cent
of the gross profits as managerial remuneration.
(vi) The British exploited India through the economic drain via home charges. India was also
forced to pay for several wars like Afghan and Burmese Wars. This was indicative of the
highly exploitative character of the British rule.
The net result of the British policies was poverty and stagnation of the Indian economy.
Poverty of the Masses and the Economic Drain
Dadabhai Naoroji, a distinguished Indian economist, in his classic paper on the ‘Poverty of
India’(1876), emphasized that the drain of wealth and capital from the country which started
after 1757 was responsible for absence of development of India. According to Dadabhai Naoroji.
“The drain consists of two elements—first, that arising from the remittances by European officials
of their savings, and for their expenditure in England for their various wants both there and in
India : from pensions and salaries paid in England : and second that arising from remittances
by non-official Europeans.” This implies that India had to export much more than she imported
in order to meet the requirements of the economic drain. During the period of the East India
Company, an outright plunder in the form of gift exactions and tributes was carried out.
Dadabhai Naoroji. Y.S. Pandit and S.B. Saul have estimated the annual drain for various periods.
Taking the estimates based on the balance of payments alone, Saul’s figure for 1880 amounts to
4.14% of the Indian national income. Irfan Habib, therefore, writes : “The fact that India had to
have a rale of saving of 4% of its national income just to pay the Tribute must be borne in mind
when economists speak of the lack of internal capacities for development, or the low per capita
income base, from which the British could not lift the Indians, however, much they tried.’’
The economic drain of wealth prevented the process of capital creation in India but the British
brought back the drained out capital and set up industrial concerns in India owned by British
nationals. The government protected their interests and thus the British could secure almost a
monopoly of all trade and principal industries. The British component of industries established
in India further drained off Indian wealth in the form of remittances of profits and interest.
Thus, the economic drain which commenced right from the inception of the British rule acted
as a drag on economic development till 1947.
1.7 Colonialism and Modernization

The British economists have always upheld that the backwardness of the Indian economy and its
failure to modernize itself was largely due to the value system, i.e.. spiritualism, asceticism, the caste
system, joint family, etc. Similarly, the British economists have always argued that Indian capital was
proverbially shy, it always sought safe avenues of investment and thus lacked the basic quality of

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