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UPSC CSE 2022 – Most Important 100 Topics | Modern Indian History | Lecture 1 – PDF


  • How was India transformed into an economic colony under British rule
  • Examine critically the impact of British policies on the Indian peasant. How did it lead to the spread of landlordism?
  • Discuss the main features of the development of modem industries in India
  • Discuss the causes of the stagnations of Indian Agriculture during British rule?
  • Discuss the main features of the development of Moden Industries in India. How did British rule hamper it.

Economic Policies of the British in India & Economic Impact of the British Rule

  • The Economic Exploitation of India can be classified into three phases
  • Mercantilist phase : 1757 to 1813
  • Mercantile capitalism phase: 1813 to 1858
  • Finance capitalism phase: 1858 to 1947

Mercantilist phase : 1757 to 1813

  • This ‘First Phase’ is generally dated from 1757, when the British East India Company acquired the rights to collect revenue from its territories in the eastern and southern parts of the subcontinent, to 1813, when the Company’s monopoly over trade with India came to an end.
  • The primary function of the British East India Company in this period was to buy spices, cotton and silk from India and sell them at huge profits to the large market these goods enjoyed in Britain. This meant that large quantities of bullion would flow out of Britain into India to pay for these commodities.
  • Despite efforts, it seemed difficult to find British goods that could be sold in India in exchange, to stem this outflow of bullion. Besides the expenditure on buying commodities, the Company also spent very large amounts on the wars that it had to fight with other European powers, all in search of the same goods to trade in.
  • These included the Portuguese, the Dutch and the French. Thus the acquisition of ‘diwani’ (right to collect revenue) in Bengal, after the Battle of Buxar, which followed the Battle of Plassey, opened the way for the Company to raise money for its expenditure in India
  • Mercantilism is an economic policy that is designed to maximize the exports and minimize the imports for an economy. It promotes imperialism, colonialism, tariffs and subsidies on traded goods to achieve that goal.
  • During the Mercantilist phase, the trade was entirely monopolized by the East India Company. They began to plunder India’s wealth by manipulating the low prices of India’s finished goods for exports to Europe and England. The surplus revenue from the provinces of Bengal was utilized to buy the finished goods for export

  • Mercantile Phase from 1757 up to 1813– This phase was marked by direct plunder. The East India Company used it monopoly of trade which functioned through ‘investments’ of Indian revenues to buy Indian products at low rates.
  • These goods were then exported to Europe and England.

Mercantile capitalism phase: 1813 to 1858

  • Adam Smith’s book, An Inquiry into the Nature and Causes of the Wealth of Nations, heralded a new school of economic thought, which critiqued the idea of companies enjoying exclusive monopolies and lobbied for a government policy of ‘free trade’ or ‘laissez faire’
  • The ‘Free Traders’, dominant in the parliament with the turn into the 19th century, demanded free access to India, which led to the passing of the Charter Act of 1813, thus ending the monopoly enjoyed by the Company in India, while subordinating its territorial possessions to the overall sovereignty of the British crown.
  • In the Mercantile capitalism phase, India was converted into a free market. British mercantile class took away the raw materials.
  • It brought back manufactured goods for being marketed in India, and Export from India came to be confined to raw materials and food grain.

  • ‘Free Trade’ changed the nature of the Indian colony completely, through a dual strategy. Firstly it threw open Indian markets for the entry of cheap, mass-produced, machine-made British goods, which enjoyed little or almost no tariff restrictions.
  • The passage of expensive, hand-crafted Indian textiles to Britain, which had been very popular there, was however obstructed by prohibitive tariff rates.
  • And secondly British-Indian territory was developed as a source of food stuff and raw material for Britain, which fuelled rapid growth in its manufacturing sector, crucial to the emergence of a powerful capitalist economy. These changes reversed the favourable balance of trade that India had enjoyed earlier. This phase laid the foundations of a classic colonial economy within India through the complex processes of commercialization of agriculture and deindustrialization, which are discussed below

Financial Capitalism (1860-1947) – Background

  • In this phase, the Government of India aimed to increase the foreign investment in India to augment its existing economic exploits.
  • It encouraged private investors from Britain to develop railways with the assurance of dividend.
  • Investment in tea plantation, agriculture and jute mills were promoted through various acts and policies.
  • Third phase of British economic policies saw the introduction of railways, post and telegraph services.
  • These infrastructure did help India in preparing an industrial base after independence, but they were primarily introduced for plundering of raw materials from India to England.
  • Foreign trade improved in the second half of the 19th century due to the introduction of railways and steel made steamships. However, the overall economic condition of the country went from bad to worse.
  • Besides, a large amount of “Home charge” was imposed leading to draining of huge amounts of money every year from India to Britain.
  • Thus, the various forms of British economic policies in India were aimed at colonial exploitation of the country

Finance capitalism phase: 1858 to 1947

  • In the Finance capitalism phase, for augmentation in the investment of British goods in India, the construction of railways, banking, post and telegraph services, etc. were developed, and to preserve control over Indian capital, the system of management agency was adopted.
  • Countries such as France, Belgium, Germany, the United States, and even Japan experienced rapid industrialization in the nineteenth century. Britain’s lead in this regard has dwindled in the face of global competition.
  • These countries increased their drive for colonies and strengthened their control over existing ones in search of newer markets and sources of raw materials.
  • As a result of industrial development, money concentrated in a small number of banks and corporations. This capital was invested in the colonies for further industrial expansion and economic exploitation.
  • Markets for British manufactured goods started to contract during this period because of high tariff restrictions in other developing capitalist countries.
  • India became critical in resolving Britain’s deficit problem. The need for heavy agricultural product imports into Britain was putting her in a vulnerable position in trade with other countries.
  • Britain’s control over India ensured that Lancashire textiles would always have a captive market.

Economic Policies of the British

  • Land Revenue Policies
  • The industrial revolution of England forced the Britishers to collect revenue for trade, projects and maintaining the country’s administration.
  • In 1793, the Britishers introduced the Permanent Settlementin the provinces of Bihar and Bengal; in 1822, the Mahalwari System was introduced in Punjab, Ganga valley and Northwestern India; and in 1820, the Ryotwari system was introduced in southern India.

  • Railways
  • The railways were the powerful auxiliary in the development of industries. In 1853, Lord Dalhousie proposed a railway network for the whole country.
  • The British were not interested in developing the Indian Industry, and they pursued railway policy for different purposes.Lord Hardinge in 1844 supported railway development for the efficient prosecution of the war and the empire’s security.
  • The works of the railways were mainly designed in the interests of Britain. The rates were manipulated with this aim to favour the import of British manufactured goods and export of Indian raw material.
  • The Railways powerfully aided in the growth of national consciousnessand led to the development of external and internal trade.

Commercialization of Agriculture

  • It emerged in the latter half of the 19th century and was one of the consequences of introducing new land relations and the revenue system. In this form, the production for village uses had been replaced by production for the market.
  • Agriculture began to be influenced by commercial considerations. The peasant produced only for the market to realize maximum cash for mainly paying the land revenue and meeting the moneylenders’ money.
  • The commercialization of agriculture had a significant impact on society. The peasants became subjects to all the ills of the national and international market and were forced to depend on the middleman to sell his product.
  • Deindustrialization
  • During the first half of the 19th century, India suffered an industrial decline due to British colonial rule. India was deeply deprived of the gains of the industrial revolution.
  • It was held mainly agrarian by the Britishers to secure cheap raw material for British industries and to use ready market in India for industrially produced goods of Britain. The entire process has been described as deindustrialization.

  • The drain of wealth:
  • The British exported to Britain part of India’s wealth and resources for which India got no adequate economic or material return. This ‘economic drain‘ was peculiar to British rule. Britishers spent a large part of the taxes and income not in India but in Britain.
  • The direct organization of the drain of wealth started in 1765 with the acquisition of Diwani of Bengal. The salaries and the other incomes of the English officials and the trading fortunes of English merchants found their way into England.
  • The drain of wealth checked and retarded the capital accumulation in India, thereby retarding the industrialization of India. The Indian products and treasure drained to England without adequate return.

Economic Impact of the British Rule


  • Ruin of Artisans and Craftsmen
  • Impoverishment of the Peasantry
  • Ruin of Old Zamindars and Rise of New Landlordism
  • Stagnation and Deterioration of Agriculture
  • Poverty and Famines




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