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Economic Policies of the British in India

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The Battle of Plassey (23 June 1757) was the turning point in the economic history of British India. After this war, the Britishers started to intervene in the economic policies of the country. The Trade and policies of the country faced severe jolt due to the policies of east India company and corrupt practices of its officials. By the end of the 18th century, British rule had been established in large parts of the country, and they wanted India to be a lucrative market for British goods. Britain destroyed the medieval economic structure in India and laid the foundation of the modern economy. During their rule in India, they came up with a number of economic policies, which had a great impact on Indian society.

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

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.

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.

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.

Various Economic Policies of the British

These economic policies had a substantial impact on the Indian economy. Many of the Indian manufacturing centers were destroyed, and the old village system was dismantled. India was reduced to being an agricultural colony of Britain to supply raw material. The essential character of the Indian economy was altered, and India became a colony of Britain in an absolute sense.

1. 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 Settlement in 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.
  • The Permanent settlement system gave East India Company a fixed sum of money and made zamindars the hereditary owners of the land. This revenue generated income for the EIC at the cost of the peasants. These land revenue policies generated revenue for the government at the cost of the peasants.
  • Due to the very high taxes, farmers grew cash crops instead of food crops and this led to food insecurity and starvation. Taxes on agricultural produce were moderate during pre-British times, and the British made it very high. 
  • Insistence on cash payment of revenue led to more indebtedness among farmers, and moneylenders became landowners in due course. Bonded labour arose because loans were given to farmers/labourers who could not pay it back.

2. 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 consciousness and led to the development of external and internal trade.

3. 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 farmers cultivated specialized crops for sale in the national and international borders. The lands in groups of villages came to be solely used to cultivate the single crop depending upon the particular suitability.
  • 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. 
  • The peasant who lacked economic reserves had to sell their product to the middleman at harvest time. Indian agriculture started to be influenced by fluctuating world prices, and the farmers hardly fared better from the commercialization of agriculture.

4. 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.
  • There was the disappearance of Indigenous courts that patronized handicrafts and employed the craftsmen regularly.
  • Deindustrialization had a significant impact on the Indian handicraft industries. Ruins of handicrafts led to industries’ decline, which led the country to unemployment and acute poverty.

5. 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. 
  • Dadabhai Naoroji referred this as moral drainage as it excluded Indians from the post of trust and responsibility. This theory highlighted the exploitative character of the British rule. 


After the  departure of Britishers from India, the economic conditions of our country became very severe. The colonial rule of nearly 200 years impoverished Indians in every respect. The two pillars of Indian economy-industry and agriculture were in a very bad condition. Infrastructure of Industrial development had become very poor. Against the backdrop, India took innumerable steps to improve the economic conditions of our country.

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Last Updated : 10 Sep, 2023
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