India under East India Company’s Rule


With coming of British colonialism in India, the economic policies followed by British were more concerned about protection and promotion of the economic interests of their own country rather than development of Indian economy under British rule. The policies followed by the company rule brought about a fundamental change in the structure of the Indian economy, transforming India into a supplier of raw materials and a consumer of finished industrial products from Britain.

There were three broad stages of British Colonialism in India. The economic impact of British rule in India is also studied under these stages to assess the full meaning of British rule.

Mercantile development (1757-1813)

    • The East India Company began to use its political power to monopolize the trade in India.
    • It dictated the terms of trade in its dealings with the traders and merchants of Bengal.
    • The Company imposed inflated prices of goods leading to adventurous capitalism whereby the wealth was created by the political clout of the British traders.
    • The revenue collected from Bengal was used to finance exports to England.

Industrial phase (1813-1858)

    • With development of British industries, India was exploited by its colonial masters as a market for British goods.
    • With coming of the act of 1813, only one-way trade was allowed by the British, as a result of which, the Indian markets was flooded with cheap, machine-made imports from newly industrialized Britain.
    • This led to loss of Indian market and foreign market for traders of the country.
    • Now, Indians were forced to export their raw materials to Britain and import the finished goods.
    • They imposed heavy imports duty on the Indian products exported to England in order to discourage them in the British market.

Financial phase (1860 onwards)

    • After the British consolidated their position in India they converted India into a market for British manufacturers while still being a supplier of foodstuffs and raw materials.
    • In the second half of the 19th century, modern machine based industry started coming up in India.
    • With the Introduction of Railways in 1853, and Post and Telegraph being introduced in year 1853 as well.
    • There was a rush of foreign investment in India mainly lured by high profits and availability of cheap labour, raw materials.
    • The Banking System was introduced in form of Avadh Commercial Bank in year 1881.
    • Home grown Industries came into existence in form of Tata Iron and Steel in 1907.
    • Socially, this led to the rise of an industrial capitalist class and a working class became important feature of this phase.

Effects of British Rule on economic conditions:

  • The British rule stunted the growth of Indian enterprise.
  • The economic policies of British checked and retarded capital formation in India.
  • The Drain of Wealth financed capital development in Britain.
  • Indian agricultural sector became stagnant and deteriorated even when a large section of Indian populace was dependent on agriculture for subsistence.
  • The British rule in India led the collapse of handicraft industries without making any significant contribution to development of any modern industrial base.
  • Some efforts by the colonial British regime in developing the Plantations, mines, jute mills, banking and shipping, mainly promoted a system of capitalist firms that were managed by foreigners.
  • These selfish motives led to further drain of resources from India.

Britain subordinated the Indian economy to its own economy and determined the basic social trends in India according to her own needs. The result was stagnation of India’s agriculture and industries, exploitation of its peasants and workers by the zamindars, landlords, princes, moneylenders, merchants, capitalists and the foreign government and its officials, and the spread of poverty, disease and semi-starvation.