Appearance
6.17 — The Economics of the Raj: Drain, Deindustrialization, Famine
In 1600, when the East India Company received its charter, India produced roughly a quarter of world manufacturing output. By 1900 the figure was about 2 percent.
Over the same period Britain went from a few percent to around a fifth and then declined as the United States and Germany industrialised.
Those numbers come from the economic historian Paul Bairoch's estimates and are approximations built from indirect evidence. They are the single most quoted pair of figures in this argument, they are broadly supported by later work, and they need to be interpreted carefully rather than waved.
This chapter asks the question directly: did colonial rule make India poor? The answer requires separating four distinct claims, examining the evidence for each, and stating where economic historians disagree.
The four claims
1. The drain. That a substantial flow of resources went from India to Britain without return.
2. Deindustrialization. That Indian manufacturing, especially textiles, was destroyed rather than out-competed.
3. Stagnation. That Indian incomes did not grow, or fell, during colonial rule.
4. Famine. That colonial policy converted droughts into mass mortality that need not have occurred.
Each is examined separately, because they are frequently bundled and they have different evidential strength.
1. The drain of wealth
The argument was made first and most rigorously by Indians. Dadabhai Naoroji, in Poverty and Un-British Rule in India (1901), and R. C. Dutt in his economic history, assembled the case from official statistics — which is worth noting, because they used the government's own published numbers.
The mechanism, precisely.
India ran a large export surplus for most of the colonial period. It exported far more than it imported. Normally a country with an export surplus accumulates foreign assets or gold. India did not.
Instead, the surplus was absorbed by payments to Britain that were not payments for goods. These were called the Home Charges and they included:
- Interest on debt raised in London for Indian railways and other works, at guaranteed rates.
- Pensions and salaries of British officials, paid in Britain.
- The costs of the India Office in London.
- Military expenditure, including India's share of imperial wars fought outside India.
- Purchases of stores required to be made in Britain.
And the diwani mechanism from Chapter 6.16 was the original form: revenue collected in India was used to buy Indian goods that were then exported, so the goods left and no payment entered.
What the estimates say. Naoroji put it at £30–40 million a year in his period. Utsa Patnaik's much-publicised recent estimate of about $45 trillion over 1765–1938 uses a compounding assumption that most economic historians regard as inflating the figure enormously — compounding a historical flow at a modern interest rate for two centuries produces numbers that mean very little. More conservative estimates put the annual drain at something like 1 to 2 percent of India's income in the later nineteenth century, with higher figures for the early Bengal period.
Where the argument is strong. The unrequited transfer is real and it is visible in the balance of payments accounts. India was running a surplus and getting nothing for it. And several of the charges are indefensible on any reading — India paid for British military expeditions to Afghanistan, Persia, China, Egypt and Africa, and paid for the pensions of officials who governed it.
Where it needs qualification. Some of the charges purchased real things — railways were built, and however unfavourable the financing terms, the track exists. The size of the drain, at 1 to 2 percent of national income annually, is significant but is not by itself enough to explain the whole income gap that opened between India and the industrialising world. The honest position is that the drain was real, was a meaningful transfer, and was one cause among several rather than the whole story.
2. Deindustrialization
This claim is stronger than the drain claim and it is better documented.
The trajectory. Indian handloom cotton textiles dominated world markets into the eighteenth century. By the mid-nineteenth century India was importing British cloth and exporting raw cotton. Between roughly 1810 and 1860, British cotton goods went from a negligible share of the Indian market to dominating it.
Three things caused it and they have to be weighed separately.
(a) Genuine technological superiority. The spinning jenny, water frame, mule and power loom (Chapter 9.5) made British yarn and cloth dramatically cheaper. A machine-spun thread in 1830 cost a fraction of a hand-spun one. This part was not policy; it was the Industrial Revolution, and it displaced handloom weavers in Britain too.
(b) Asymmetric trade policy, which was policy. This is the part that matters for the argument.
Britain protected its own market against Indian textiles when Indian textiles were better — the Calico Acts of 1700 and 1721 (Chapter 6.16), and tariffs on Indian goods that ran to 70–80 percent in the early nineteenth century.
And then imposed free trade on India when British textiles were better. Indian import duties on British goods were reduced repeatedly and by the later nineteenth century were minimal. When India did impose a small revenue tariff on cotton imports in 1894, Lancashire manufacturers lobbied and an equivalent excise duty was imposed on Indian mill cloth to cancel the advantage. That excise is documented, was widely resented, and became a nationalist grievance of the first order.
This is not free trade. It is protection for one side and free trade for the other, and it was recognised as such at the time by Indian and by some British observers.
(c) The destruction of the demand side. The Indian courts, nobles and states that had patronised fine textiles were abolished or impoverished, which removed the market for the high end.
What the evidence shows about the effect. Employment in traditional manufacturing fell substantially, and the share of the workforce in agriculture rose over the nineteenth century — a reversal of the direction every industrialising country went. Weaving communities in Bengal, Gujarat and the south were devastated.
The specific story about weavers' thumbs being cut off is not supported by evidence and appears to derive from an eighteenth-century Company account of a different practice; the documented coercion is bad enough without it — Company monopsony arrangements in Bengal bound weavers by advances to sell only to the Company at fixed prices, with penalties.
Where economists disagree. Some argue the handloom sector was more resilient than the classic account suggests, surviving in coarse cloth and reviving in the twentieth century, and that the decline in the manufacturing share partly reflects population growth in agriculture. The direction is not disputed. The magnitude is.
3. Stagnation
This is where the numbers are clearest and the conclusion is not in serious doubt.
Indian per capita income grew very little across the colonial period. The most careful reconstructions — including by Angus Maddison and by later Indian and British economic historians working from Indian data — indicate essentially flat real per capita income over roughly 1870–1947, with some estimates showing a slight decline in the last decades.
Meanwhile British per capita income roughly doubled or more over the same period, and Japan, which was not colonised, industrialised from a comparable starting point (Chapter 9.13).
Other measurable indicators over the colonial period:
Life expectancy at birth was around 32 years in 1947, having barely moved for decades.
Literacy at independence was around 12 percent.
Per capita food grain availability declined over the first half of the twentieth century, according to the standard series, though the data quality is debated.
Famine mortality was high and repeated.
Industrial output did grow in absolute terms — Indian-owned cotton mills in Bombay and Ahmedabad from the 1850s, the Tata iron and steel works at Jamshedpur from 1907, and jute in Bengal — and it grew from a very low base and was not permitted the protection that every other industrialising country used. Indian entrepreneurs faced discrimination in access to credit, government contracts, and railway freight rates that favoured moving raw materials to ports over moving goods between Indian regions.
4. The famines
This is where the moral weight of the chapter sits.
Major famines under British rule include the Bengal famine of 1770 (Chapter 6.16), the Agra famine of 1837–38, the Orissa famine of 1866, the Great Famine of 1876–78, the Indian famine of 1896–97, that of 1899–1900, and the Bengal famine of 1943. Total mortality across the colonial period runs into the tens of millions on the standard estimates.
The 1876–78 famine and the policy that governed it.
The drought was severe and real — it coincided with one of the strongest El Niño events on record (Chapter 2.6), which produced simultaneous drought in India, China and Brazil.
The policy response was governed by doctrine. The Viceroy, Lord Lytton, held that relief should not interfere with the market and should not create dependency. Grain exports from India continued during the famine. Relief works were established with a wage — the Temple wage, named for the official who set it — fixed at a level that provided around 1,600 calories a day for heavy manual labour, which is below what a person doing that work needs to survive. This is documented, it was criticised at the time by medical officers, and the comparison to later famine relief standards is unavoidable.
A famine relief fund was established and a Famine Commission produced a code in 1880 that improved matters substantially, and later famines were handled better — which is itself evidence that the earlier response had been a choice.
The Bengal famine of 1943.
Around 2 to 3 million people died. The most careful modern studies find that there was no absolute shortage of food in Bengal sufficient to cause famine on that scale.
What caused it:
The fall of Burma to Japan in 1942 cut off a source of rice imports and created panic.
A deliberate "denial policy" removed boats and rice stocks from coastal Bengal to prevent their use by a Japanese invasion — destroying the transport system of a riverine region and the livelihood of fishermen.
Wartime inflation and speculative hoarding put rice out of the reach of the rural poor while it remained physically available in the market.
Priority supply to Calcutta's war industries and to the army at controlled prices, while the countryside paid the free-market price.
And the refusal of imports. Requests from the Government of India for grain shipments were repeatedly refused or cut by the War Cabinet in London, on grounds of shipping shortage and competing priorities. Churchill's role is the subject of a hard historical argument. The documented record shows the War Cabinet declining or reducing shipments, Churchill making dismissive remarks about Indians recorded in Leo Amery's diaries, and the Secretary of State for India pressing repeatedly for relief. Defenders point to genuine wartime shipping constraints and to Australian grain that was eventually sent. The honest statement: there was a real shipping constraint, the decisions taken within it prioritised other theatres, and the attitude documented in the cabinet papers and diaries was contemptuous.
Amartya Sen's analysis of this famine changed the field. He showed that famines are usually not about the absolute availability of food but about entitlement — whether particular people have the means to obtain it. Landless labourers in Bengal lost their purchasing power as prices rose while their wages did not, and they starved while grain sat in markets. This work won the Nobel Prize in Economics and it reframed famine as a distributional and political failure rather than an agricultural one.
And the decisive comparison. India has not had a famine since independence, through droughts as severe as those that killed millions before it. Sen's explanation is that a country with elections, an opposition and a free press cannot ignore a famine, because a government that does so loses power. That is one of the strongest empirical arguments for democracy in this entire volume, and Chapter 13.2 uses it.
What was built
An honest ledger includes the other column.
Railways. About 65,000 kilometres by 1947, the fourth-largest network in the world. The financing was extremely favourable to British investors — a guaranteed return of around 5 percent paid out of Indian revenue whether the line was profitable or not, which removed any incentive for cost control. The routes were designed to move raw materials to ports and troops to trouble, rather than to connect Indian markets to each other. And the network was built, and it is still the backbone of Indian transport.
Irrigation. Major canal systems in Punjab, Sindh and the United Provinces, which substantially raised agricultural output in those regions.
Legal and administrative institutions. A codified legal system, a professional civil service, land records, a census, universities, a postal system and telegraph. Chapter 6.19 examines each of these and asks what it was for.
The English language, and its consequences, which Chapter 6.19 also handles.
And the standard defence of empire — that these were gifts — has to be weighed against two facts. They were paid for out of Indian taxation, not by Britain. And every one of them was built for the purposes of the colonial state, with Indian benefit as an incidental by-product where it occurred.
The verdict on the evidence
Did colonialism make India poor? The careful answer has three parts.
India was not rich before the British in the modern sense. Per capita income in Mughal India was low by modern standards and probably not much above subsistence for most people, and the Mughal state extracted heavily (Chapter 6.12). The romantic picture of a prosperous pre-colonial India is a poor guide.
But India was a manufacturing and export power with a substantial commercial economy, and it was on a comparable footing with Europe as late as 1700. Between 1700 and 1947 Europe transformed and India did not.
And the mechanisms by which that gap opened were substantially political. Asymmetric tariffs that protected British industry and opened the Indian market. A fiscal transfer that removed a share of savings each year. Public expenditure heavily weighted toward army and administration and away from education, health and industrial development. Land settlements that in much of India created rentier landlords rather than investing cultivators. And a state that had no interest in Indian industrialisation and periodically acted against it.
The strongest version of the case against the empire is not that it looted a rich country. It is that it governed a large, capable, commercially sophisticated society for two centuries and left it with a life expectancy of 32, a literacy rate of 12 percent, and essentially no growth in per capita income — at exactly the historical moment when growth was available and other Asian countries achieved it.
Where this shows up in your life
The argument is live. Shashi Tharoor's Oxford Union speech in 2015 and his subsequent book made this case to a mass audience; British defenders of empire have replied; and the debate about reparations, apology and museum restitution continues.
And the reason it matters beyond the argument is that Chapter 9.14 asks why India is still developing, and any honest answer has to begin with what condition it was in on 15 August 1947 and why. This chapter is that accounting.
What the next page covers
In 1857 the Bengal army mutinied, and within weeks much of northern India was in revolt. Chapter 6.18 covers what happened — the immediate cause and why it was more than a cartridge, the grievances that had accumulated over the previous decades, who joined and who did not, how it was suppressed and what was done in the suppression, and why the same event is called a mutiny, a rebellion and the first war of independence depending on who is speaking.