Industrial Transition in India


  • The process of industrial transition divided into: industrial growth during the 19th century and industrial progress during the 20th century
  • Industrial growth during the 19th century
    • Decline of indigenous industries and the rise of large scale modern industries
    • 1850-55: first cotton mill, first jute mill and the first coal mine established. Railway also introduced.
    • Despite some industrialisation, India was becoming an agricultural colony
    • The thrust to industrialisation came from the British because
      • They had capital
      • They had experience in setting up industries in Britain
      • They had state support
    • British industrialists were interested in making profits rather than economic growth of India
    • Parsis, Jews and Americans were also setting industries
    • No Indian industrialists because
      • Neither the merchants nor the craftsmen took the lead in setting industries
      • While the craftsmen didn’t possess capital, the merchants were happy with trading and money lending activity which was also growing at that time.
    • However, some Parsis, Gujaratis, Marwaris, Jains and Chettiars joined the ranks of industrialists
  • Industrial Growth in the first half of the 20th century
    • Imp events that stimulated industrial growth
      • 1905: Swadeshi Movement
      • First WW
      • Second WW
    • Great stimulus was given to the production of iron and steel, cotton and woollen textiles, leather products, jute.
    • Tariff protection was given to Indian industries between 1924 and 1939. This led to growth and Indian industrialists were able to capture the market and eliminate foreign completion altogether in important fields
    • The increase in industrial output between 1939 and 1945 was about 20 percent
    • After the WW I, the share of the foreign enterprises in India’s major industries began to decline.
  • Causes for the slow growth of private enterprise in India’s industrialisation
    • Inadequacy of entrepreneurial ability
      • Indian industrialists were short-sighted and cared very little for replacement and renovation of machinery
      • Nepotism dictated choice of personnel
      • High profits by high prices rather than high profits by low margins and larger sales
    • Problem of capital and private enterprise
      • Scarce capital
      • Few avenues for the investment of surplus
      • No government loans
      • Absence of financial institutions
      • Banking was not highly developed and was more concerned with commerce rather than industry
    • Private enterprises and the role of government
      • Lack of support from the government
      • Discriminatory tariff policy: one way free-trade
      • Restrictions transfer of capital equipments and machinery from Britain
      • Almost all machinery was imported
    • Despite these difficulties, the Indian indigenous business communities continued to grow, albeit at a slow pace.

Forms and Consequences of Colonial Exploitation

  • Main forms of colonial exploitation
    • Exploitation through trade policies
    • Exploitation through export of British Capital to India
    • Exploitation through finance capital via the Managing agency system
    • Exploitation through the payments for the costs of the British administration
  • Exploitation through trade policies
    • Exp of cultivators to boost indigo export: forced
    • Exp of artisans by compulsory procurement by the Company at low prices: gomastas were the agents of the Company who used to do this
    • Exp through manipulation of export and import duties:
      • Imports of Indian printed cotton fabrics in England were banned
      • Heavy import duties on Indian manufactures and very nominal duties on British manufactures.
      • Discriminating protection was given (to industries that had to face competition from some country other than Britain). This was whittled down, however, by the clause of Imperial Preference under which imports from GB and exports to GB should enjoy the MFN status.
    • Exploitation through export of British Capital to India
      • There were three purposes of these investment (in transport and communication)
        • To build better access systems for exploited India’s natural resources
        • To provide a quick means of communication for maintaining law and order
        • To provide for quicker disbursal of British manufactures throughout the country and that raw materials could be easily procured
      • Fields of FDI
        • Economic overhead and infrastructure like railways, shippings, port, roads, communication
        • For promoting mining of resources
        • Commercial agriculture
        • Investment in consumer goods industries
        • Investments made in machine building, engineering industries and chemicals
      • Forms of investment
        • Direct private foreign investment
        • Sterling loans given to the British Government in India
      • Estimates show that foreign capital increased from 365 mn sterling in 1911 to 1000 mn sterling in 1933.
      • British multinationals were the chief instruments of exploitation and it were they who drained out the wealth of India.
      • These investments show that
        • British were interested in creating economic infrastructure to aid exploitation and resource drain
        • They invested in consumer goods and not in basic and heavy industries to prevent the development of Indian industries
        • Ownership and management of these companies lay in British hands
      • Exploitation through finance capital via the Managing agency system
        • Managing agency system: The British merchants who had earlier set up firms acted as pioneers and promoters in several industries like jute, tea and coal. These persons were called managing agents
        • It may be described as partnerships of companies formed by a group of individuals with strong financial resources and business experience
        • Functions of managing agents
          • To float new concerns
          • Arrange for finance
          • Act as agents for purchase of raw materials
          • Act as agents to market the produce
          • Manage the affairs of the business
        • They were important because they supplied finance to India when it was starved of capital
        • In due course, they started dictating the terms of the industry and business and became exploitative and inefficient
        • They demanded high percentage of profits. When refused they threatened to withdraw their finance
      • Exploitation through payments for the costs of British administration
        • British officers occupied high positions and were paid fabulous remunerations.
        • These expenditures were paid by India
        • They transferred their savings to Britain
        • India had to pay interest on Sterling Loans
        • India has to pay for the war expedition of the Company and later the Crown

Consequences of the exploitation

  • India remained primarily an agricultural economy
  • Handcrafts and industries were ruined
  • Trade disadvantage developed due to the policy of the British
  • Economic infrastructure was developed only to meet the colonial interests
  • Drain of Wealth
  • The net result of the British policies was poverty and stagnation of the Indian economy
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