Economic Challenges and Industrial Growth in Colonial India

The economic issues in colonial India played a significant role in the nationalist movement, challenging British claims of benevolent rule. Early nationalists exposed how British policies led to India’s poverty, leading to increased national consciousness. This struggle for economic self-reliance eventually paved the way for India’s fight for political freedom.

The Rise of Nationalist Agitation and Indian Capitalism

The Rise of National Consciousness in Colonial India

• Economic Agitation and Ideological Challenge: The nationalist agitation on economic matters played a significant role in challenging the ideological dominance of foreign rulers who claimed that their rule was in the best interests of India. 
  • Revealing the True Consequences of British Rule: This agitation effectively exposed the fallacy of the moral justifications put forth by the British colonial administration. It made it clear that India’s impoverished state was a direct consequence of being governed for the benefit of British interests. 
  • The agitation on economic issues not only contributed to intellectual unrest but also helped in spreading national consciousness during the moderate phase of the freedom struggle (1875-1905), which was a critical period for the budding national movement.

• Evolution of Nationalist Demands: Up until the late 19th century, the nationalists primarily sought a share in political power and control over financial matters. 
  • However, as the 20th century began, their demands evolved, and they began to call for self-rule, akin to that of the United Kingdom or other British colonies.
• Dadabhai Naoroji and the Call for Self-Rule: Dadabhai Naoroji was one of the prominent figures among these nationalists advocating for self-rule.

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Rise of modern Industry: Colonial Situation and State Policy

• British Policies and Deindustrialization: The British rulers of India did not conceive of an industrialized India, much less plan for her industrialization. 
  • Rather, the British rulers deliberately followed policies to ‘deindustrialize’ India and convert it and preserve it as ‘an agricultural farm’ of industrialized Britain. 
• Compulsions of Imperial Control and Economic Exploitation: However, compulsions of maintaining imperial control over the country and its thorough economic exploitation led Britain to construct roads, railways, posts and telegraph lines, develop ports, irrigation works, banking, exchange and insurance facilities etc.-developments which provided the material basis for the beginning of modern industry in India. 

Rise of Indian National Bourgeoisie

• The Rise of the Indian National Bourgeoisie: The rise of the Indian national bourgeoisie can be attributed to the accumulation of wealth by Indian traders, money-lenders, and bankers who had partnered with English merchant capitalists in India. 
  • Their roles aligned with the British colonial exploitation strategy. 
• Facilitation of Land Revenue Collection: Indian money-lenders provided loans to financially strained farmers, thereby facilitating the collection of land revenue for the state. 
  • These loans also played a crucial role in marketing agricultural products. 
• Distribution and Export of Goods: Indian traders were instrumental in distributing imported British goods across the farthest reaches of India and in transporting Indian agricultural products to the ports for export to the European market. 
  • Indigenous bankers played a vital role in both the distribution and collection processes.

• Hindrances to Indian Enterprise Growth: However, British capitalism did not allow Indian enterprises to compete with it and frequently hindered their natural growth. 
  • The colonial situation hindered the development of a robust and independent industrial bourgeoisie in India. 
• Limited Growth of Indian Capitalism: As a result, Indian capitalism experienced limited growth in an unfavorable environment, setting it apart from the development trajectories observed in other independent countries such as Germany and Japan.

Growth of Indian Capitalist Enterprise

• Growth in the Textile Industry: The growth of Indian capitalist enterprise in the 19th and early 20th centuries can be observed primarily in the textile industry, which initially attracted Parsi and Gujarati entrepreneurs. 
• Bombay: A Focal Point for the Textile Industry: Bombay, with its abundance of raw materials, humid climate, access to a low-cost labor force, and a local market for textiles, became a focal point for this industry in the 1850s. However, the industry faced challenges, such as:
  • Competition from Lancashire and Manchester textile products.
  • Hostility from the Indian colonial administration through discriminatory tariff and excise policies.
  • The removal of duties on cotton goods during 1879-82.
  • Lack of access to long-term credit facilities from the European-owned and European-dominated banking industry.
  • Expansion of the railway system with concessional freight rates favoring the movement of goods to port towns instead of inland centers.
  • Dependence on imported plant and equipment.
  • Lack of state protection from the colonial administration.

• Perseverance of Indian Industrialists: Despite these formidable challenges, Indian industrialists persevered through their resourcefulness and cost-reduction measures, including labor exploitation. 
• Impact of the Swadeshi Movement: The Swadeshi Movement in the early 20th century provided a boost to the textile industry by promoting the use of Indian-made goods. 
  • These developments underscored the intertwined nature of indigenous industrial development and India’s struggle for freedom. 
• Support for the Indian National Congress: Consequently, the Indian capitalist class began supporting and financing the leadership of the Indian National Congress and its programs and policies.

• Establishment of Tata Iron and Steel Company: A significant milestone was the establishment of the Tata Iron and Steel Company in Jamshedpur by Jamshedji Tata in 1907. 
  • It began producing pig iron in 1911 and steel by 1913. 
• Growth of Plantation Industries, Jute Mills, and Coal Mines: The 1850s and 1860s also witnessed growth in plantation industries (such as indigo, tea, coffee, and rubber), jute mills, and coal mines. 
  • By 1880, there were twenty jute mills and fifty-six coal mines operating, and this increased to twenty-nine jute mills and one hundred twenty-three coal mines by 1895. 
• British Influence in Indian Industries: However, many of these industries were initiated and managed by British capitalists under the encouragement of the Government of India.

Impact of First World War

The First World War had several significant impacts on Indian industries and the overall socio-political landscape:

• Protection Against Foreign Competition: During the war, foreign imports into India decreased significantly, providing Indian industries with a level of protection against foreign competition. 
  • This shift was partly due to the reduced availability of imported goods as a result of the war.
• Increase in Government Purchases: The Indian government increased its purchases for war-related purposes, stimulating domestic production and benefiting Indian industrialists. 
  • This boost in demand for various products provided Indian businesses with opportunities for increased production and sales.
• Lower Raw Material Prices: With decreased exports of raw materials during the war, the prices of these materials remained relatively low. 
  • This situation was advantageous for Indian industrialists who relied on these raw materials for their manufacturing processes.
• Limited Rise in Wages: Despite the increased demand for labor during the war, wages did not rise substantially. 
  • This played a role in keeping production costs lower for Indian industrialists.
• Political Awakening and Demand for Industry Protection: The war had a significant impact on political consciousness in India. 
  • The urgency of the war effort, coupled with a desire for self-sufficiency and economic development, led to a quickening of the pace of political awakening among Indians. 
  • As a result, there was a growing demand for the protection of Indian industries as a patriotic measure.
• Government Response: The British government in India responded to the demand for industrial development with a somewhat favorable stance, driven by two main objectives: 
  • The need for increased revenue and the strategic necessity of fostering some degree of economic self-sufficiency. 
  • In 1915, Lord Hardinge expressed the idea that India should aspire to become a manufacturing country after the war.
• Establishment of the Industrial Commission: To address the industrial development issue, the government established an Industrial Commission in 1916. 
  • The commission was tasked with assessing opportunities for Indian capital and enterprise in industry and commerce, as well as suggesting ways in which the government could support industrial development.
• Indian Munitions Board: As a conciliatory gesture, the Indian Munitions Board was established in April 1917. 
  • This board recommended policies that included purchasing military supplies within India and establishing new manufacturing plants in the country to produce these supplies.

These developments reflected a growing sense of economic and political self-determination among Indians and set the stage for future efforts to promote Indian industry and self-sufficiency.

Protection During Interwar Period (1918-39)

During the interwar period (1918-1939), there was a growing recognition of the need to protect Indian industry from foreign competition and to promote economic self-sufficiency. 

Several measures were adopted to address these concerns:

• • Stores Purchase Committee (1919): In December 1919, the government appointed a Stores Purchase Committee, which recommended the necessity of providing Indian industries with guaranteed minimum orders for government purchases. 
    • This step aimed to bolster domestic production and support local industries.
  • Montagu-Chelmsford Reforms: The Montagu-Chelmsford Reforms of this period favored a policy of fiscal autonomy for India. 
    • It was broadly agreed that the Secretary of State for India should avoid interfering in fiscal matters when the Government of India and its Legislature were in agreement. 
    • This autonomy allowed India to have greater control over its economic policies.
  • Fiscal Commission (1921-1923): In October 1921, the government established a Fiscal Commission under the Chairmanship of Sir Ibrahim Rahimtoola. 
    • In its report submitted in 1923, the commission recommended a policy of protection for industries in their initial stages of development or when facing unfair competition. 
    • It introduced a Triple Formula for industries seeking fiscal protection, involving natural advantages, the need for protection for rapid development, and eventual readiness to face global competition without protection.

• Criteria for Fiscal Protection

• • • Natural Advantages: The industry in question should possess natural advantages, such as a sufficient supply of raw materials, labor, cheap power, and a ready domestic market.
    • Need for Protection: The industry must be unable to develop at the desired pace without protection.
    • Potential for Global Competition: The industry should have the potential to eventually compete in the world market without protection.
• Establishment of a Tariff Board: The commission recommended the establishment of a Tariff Board to consider applications for fiscal protection. 
  • This board played a crucial role in determining which industries would receive protection.

Protection for Various Industries

• Government Protection and Industrial Growth (1923-1939): Following the recommendations, the government granted protection to several Indian industries, including the steel industry (1924), tinplate industry (1924), paper industry (1925), match industry (1928), cotton textile industry (1930), heavy chemicals industry (1931), sugar industry (1932), and silk yarn and piece-goods industry (1934). 
  • These measures were aimed at nurturing and developing these industries. 
• Imperial Preferences and Its Impact: The Government of India also accepted the system of Imperial Preferences, which was consolidated by the Ottawa Imperial Conference of 1932. 
  • This system involved concessional tariffs among members of the British Empire. 
  • However, because it did not work in India’s interests, it was not renewed in 1936.

• Challenges and Progress in Indian Industry: Despite challenges such as the overvalued rupee-exchange ratio, the Great Depression of 1929-30, and the imposed Imperial Preference System, Indian industry made significant progress during the period from 1923 to 1939. 
  • These measures played a role in protecting and fostering domestic industries, contributing to India’s economic development.

Industrial Development, State Policy and Indian Capitalist Class (1939-47)

The period from 1939 to 1947, which included the Second World War, had significant implications for industrial development, state policy, and the Indian capitalist class:

• Impact of World War II: The Second World War had a dual impact. While it brought scarcity and famine conditions for the general population, it created a period of super profits for Indian businessmen. 
• Impact of World War on Indian Capitalism: The near halt of industrial imports due to large-scale war requirements provided a favorable environment for the growth and consolidation of Indian capitalism. 
• Speculation and Black-Market Activities: Unscrupulous producers and traders further increased their profits through speculation, hoarding, and black-marketing.
• Expansion and Diversification of Indian Capital: During the war, existing capitalist enterprises did not significantly expand, nor did many new enterprises emerge due to restrictions on importing plants and equipment. 
• Growth of New Enterprises: However, Indian capitalists were able to considerably expand their activities. 
• They sponsored new Joint Stock Companies, promoted new banks, and floated life insurance companies. 
• Increased Collaboration with Foreign Capital: Collaboration between Indian and foreign capitalists increased, leading to joint ventures and industrial enterprises. 
• Diversification of Business Houses: Indian big business houses also adopted a policy of diversification into various sectors, including factory industries, banks, insurance, trading, service agencies, and speculation in commodities, bullion, stocks, and shares. 
• Consolidation of Economic Power: By the end of World War II in 1945, these big business houses had grown significantly, consolidating their economic power. 
• This period saw the rise of influential business conglomerates that would dominate India’s post-independence industrial landscape..
• Government’s Tariff Board (1945): In 1945, the government established a new Tariff Board to examine claims of industries seeking protection. 
• The board introduced more liberal guidelines for providing protection, including the condition that the industry seeking protection should have been established and conducted on sound business principles. 
• It also considered whether the industry had natural and economic advantages and the potential to develop without protection within a reasonable time. 
• Alternatively, the industry should deserve protection in the national interest, and the cost of such protection to the community should not be excessive.
• Strengthening of the Indian Capitalist Class: The rise of modern industrial enterprise in India during this period contributed to the strengthening of the Indian capitalist class. 
• This capitalist class drew strength from the nationalist movement and, in turn, provided financial support to sustain the movement. 
• By the time of independence, the Indian capitalist class had become a significant socio-economic force with the potential to influence political decisions.
• The Second World War and its aftermath played a crucial role in shaping the trajectory of Indian industrial development, the relationship between Indian and foreign capitalists, and the evolving role of the Indian capitalist class in the country’s socio-economic and political landscape.

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Conclusion

The growth of Indian industries, supported by nationalist movements, laid the foundation for India’s future economic independence. 

• Despite colonial challenges, the Indian capitalist class emerged stronger by the time of independence, marking a crucial shift in India’s socio-economic and political dynamics.

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