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review ARTICLE
Aspects of Indias Colonial Economic History
Utsa Patnaik
Colonialism and the Indian Economy by Amiya
Kumar Bagchi (Delhi: Oxford University Press), 2010;
pp 303, Rs 865 (HB).
I
n this volume, nine of Amiya K Bagchis
most important scholarly papers
relating to Indias colonial economic
history have been brought together to the
great relief of academics and students of
the area who hitherto had to access very
diverse sources for these papers. These
studies were published over a period of six
years starting 1973, and have deservedly
become mandatory reading for anyone
studying and researching the impact of
colonial rule on India. The volume is en-
riched by a long and useful Introduction,
in which the arguments are summarised.
The author with characteristic generosity
acknowledges colleagues and friends who
actually contributed little to his writings
but rather have been beneciaries,
learning from the insights and erudition
they embody.
Drain of Wealth
The rst paper is an estimate of the gross
domestic material product of Bengal and
Bihar during 1794-96, using basic data
mainly from Henry T Colebrooks Remarks
on the Husbandry and Internal Commerce
of Bengal, 1795. The estimate is of interest
because as the author points out, Bengal
was the earliest source (from 1765 on-
wards) of tax revenues and inow of
costless commodities for Britain, and
Bengal remained the major source even
after the acquisition of further territo-
ries and extension of tax collection to
north India, Madras, the Deccan and
Punjab. The authors estimate of the
annual material product of Bengal and
Bihar is Rs 476.25 million for 1794-96, or
47.625 million at an exchange rate of
Rs 10 to one pound sterling.
It would be interesting if we compared
the authors estimate with the gross
domestic product (GDP) of England. As-
suming that the tertiary sector accounted
for between a quarter to one-third of the
GDP of Bengal, the estimated GDP would
range between 63.55 million and 71.40
million at the nominal exchange rate,
and a rough adjustment for purchasing
power would give a range from 190 mil-
lion to 214 million. (This is on the basis
of statements by administrators that
Rs 10 in India would buy a basket of basic
goods which contained at least three times
the quantities that one pound sterling
could purchase in England.)
We have to remember that in 1791
England and Wales had a population of
only 8.21 million according to estimates
by Lee and Schoeld (1981) which was
growing at 1.1% annually to reach 9.16
million by 1801. The current value GDP
of England and Wales is stated to be
116.6 million in 1790 increasing to
212.7 million in 1800, according to Cole
(1981). This yields an annual growth rate
of 6.19%, using which 157.44 million is
the interpolated mid-decade value for
1795. We can conclude that the nominal
GDP of England and Wales in the mid-
1790s was 2.2 to 2.5 times the nominal
GDP of Bengal and Bihar at the same
date, which as we saw earlier ranged
from 63.55 million to 71.4 million us-
ing the Bagchi estimate of material prod-
uct adjusted by assuming two different
shares of services. The GDP of England
and Wales at 157.44 million was thus
denitely smaller than the purchasing
power adjusted GDP of Bengal and Bihar
which ranged from 190 million to 214
million. The importance to a small coun-
try like England can readily be under-
stood, of acquiring control over the tax-
paying and purchasing capacity of a
tropical region economically larger than
itself, which provided the revenue base
not only for further territorial expan-
sion, but also for purchasing export
goods out of the revenue, thus entailing
zero outlay by the East India Company as
a trading company. Such tax revenue-
nanced exports are a pure transfer, the
economic essence of the drain of wealth.
Undervaluation of the Rupee
The question of nominal exchange rates
and adjusting for purchasing power is
not generally discussed by scholars of
underdevelopment. This is not identical
with, though it is related to, the question
of secularly declining terms of trade, on
which there is a large literature. The very
fact that the currency of the colonised
region was always historically severely
undervalued relative to the currency of
the world capitalist leader, and this per-
sisted for centuries, was itself a manifes-
tation of controlled trade at controlled
relative prices through the exercise of
extra-economic political power. When
one pound sterling worth of goods was
purchased in India at the nominal ex-
change rate (Rs 10 initially, Rs 15 later),
a three times larger volume of Indian
goods was obtained compared to the vol-
ume of the same goods that one pound
sterling could command in England itself.
This is aside from the fact that many
primary goods procured in India at the
undervalued rate could not ever be pro-
duced at all in cold temperate England
and were thus all the more crucial for
underpinning a much more varied con-
sumption basket than the English popu-
lation could ever have accessed if it was
obliged to rely only on domestic output
or trade with temperate land neigh-
bours. The same argument applies to the
other European countries France and
Netherlands in particular and their
tropical colonies. On the other hand the
relative overvaluation of the metropolitan
currency did not mean that its exports to
the colonies suffered because much of
colonial trade was deliberately monopo-
lised by Britain, fencing it off from other
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countries, rst through the Navigation
Acts and later through government stores
purchase policies of buying British.
So deeply entrenched were these struc-
tures of imperialism-related international
inequality, that over half a century after
political independence the undervalua-
tion of developing country currencies
has not only persisted but they are con-
stantly urged to devalue further to the
benet of advanced nations, particularly
the primary input suppliers among the
developing countries. (Only China, a
manufacturing competitor with a large
export surplus, is urged to appreciate its
currency.) On the other hand its demand
for imported energy and intermediate
goods being relatively inelastic, the typi-
cal developing country runs up a large
import bill. At present taking account of
a relatively higher rate of ination in
developing compared to developed coun-
tries, the World Bank adjusts the nominal
exchange value of the Indian rupee
against the US dollar no longer three
times, but by a factor of 2.5 to obtain the
purchasing power parity (PPP) adjusted
value and similarly applies a factor of 2
in the case of China. The nominal Rs 60
per $1 is taken as equivalent to $2.5 on
the basis of purchasing power. If the
nominal exchange rates actually did re-
ect purchasing power, Indias present
large current account decit would dis-
appear and a surplus appear for the
same volume of exports and imports, for
rupee exports (assuming for arguments
sake that their magnitude remains unaf-
fected) would be worth two and a half
times more in dollars, and imports would
remain unchanged in dollar terms while
costing only two-fths in rupees.
De-industrialisation
The most important manifestations of
colonial exploitation, de-industrialisation
and the drain of wealth are discussed
in most of the papers in the volume.
De-industrialisation is treated in two
papers, De-industrialization in India in
the Nineteenth Century and Deindustri-
alization in Gangetic Bihar comprising
the third and fourth chapters, which over-
lap to some extent. The rst addresses
theoretical questions to a greater degree
while the second focuses on the estimation
method for arriving at the population
dependent on manufacturing in the dis-
tricts of Gangetic Bihar at two dates.
While discussing the destruction of
handicrafts and the differing implications
for the metropolitan and the colonised
countries, Bagchi had taken issue with
Daniel Thorner for his remark that the
decline of traditional manufacturing was
not unique to India and that the ruin,
sooner or later, of the old-style craftsmen
was as integral a part of the Industrial
Revolution as the coming of the factory
system. Bagchi rightly seized upon this
careless formulation to point out that
the spatial dimension of the process was
obviously all important: the Industrial
Revolution took place in England giving
rise not only to displacement but also to
new employment opportunities there,
while the destruction of textile spinning
and weaving and other manufactures
took place in India which was kept com-
pletely trade liberalised in order to
absorb a rising share of Englands factory
output. What resulted was a process of
pure immiserisation, while in the
m odern sector the plantations and mills
which came up many decades after
craft erosion, total employment by 1901
was a paltry one million workers, much
smaller than the numbers displaced. Using
Buchanan Hamiltons surveys of Gangetic
Bihar districts carried out during 1809
to 1813, and comparing with the 1901
Census data on occupational distribution
of the population, he established that
the proportion of population dependent
on manufacturing activities had declined
considerably from an initial estimate of
28.5% assuming each spinner supported
one other person, to 14.5% by 1901 where
the latter gure includes pure sellers apart
from makers in the activity of food, drink
and stimulants and includes pure sellers
among the traders in piece goods; alter-
natively if it is assumed that each spin-
ner supported only herself, at the initial
date the estimate is 18.5% and this is
seen to decline to 8.5% by 1910 when the
latter number is adjusted by deducting the
pure sellers in the activities mentioned.
Buchanan Hamiltons 1809-13 survey
in fact provides an ideal base-year study,
because up to this period India was not
only the worlds largest producer of cotton
textiles but also the largest exporter. Be-
tween 1813 and 1833, however, the process
of ending the East India Companys trade
monopoly was completed. The pattern of
Indias textile trade saw a reversal, as rst
its cotton cloth exports to Europe were
totally displaced by cloth from Englands
new factories, followed by machine-made
yarn and cloth from these factories pouring
into a compulsorily open Indian market.
The author says that apart from the
Marxist writers, by and large Northern
scholars do not accept the fact of colonial
deindustrialisation. That is indeed true
of the perhaps understandably blinkered
English and especially the Cambridge
variant of economic history writing, but
in fact many more objective European
scholars have not only accepted the fact
but have stated in so many words that
metropolitan factory industry itself could
not have arisen without the discrimina-
tion practised against Asian textiles.
Technical innovation and industriali-
sation in Britain could take place at all
only by closing its market entirely to the
popular Asian textiles by law, from 1700
to 1775, and after that, raising tariffs
against certain categories of Asian textiles
for more than 50 years, long after the
factory system became dominant. For
three-quarters of a century starting 1700,
if an individual in Britain was so much
as seen wearing printed or painted cotton
she was liable to be physically attacked
by wool spinners and weavers, and the
clothes torn off her back; and by the 1721
legal amendments she was subjected to
a ne of 5 while any merchants found
to be selling Asian textiles had to pay
25 this when the annual income per
capita in 1721 was only 8. Only after
seven decades of stop-start experiments
with spinning machines, was it nally
possible to produce domestically cotton
yarn sufciently ne to compete with the
Indian spinners skill. Arkwrights petition
to Parliament was granted, and the out-
right ban on wearing cotton clothing in
England lifted (Mantoux 1948) and
replaced by tariffs against Asian textiles
which in turn did not nally go until 1846.
This history of prolonged protectionism
for a century and a half so prolonged
that the world has not seen its like either
before or since in the very country whose
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33
economists advocated free trade in theory
while never opposing the prevalent prac-
tice of protection against Asian textiles,
was noted by all honest and insightful
scholars of academic integrity which
included Marxists but the scholars
were not conned to Marxists. Paul Baran,
a rst generation immigrant into the
United States, was certainly an out-
standing Marxist who wrote at length in
his Political Economy of Growth on the
deliberate policy measures leading to
British industrialisation at the expense
of deindustrialisation in India. However
neither Friedrich List nor Paul Mantoux
can be described as Marxists, but they
similarly wrote at an earlier date, and
wrote to devastating effect, about the
discrimination against Indian textiles.
All of them had seen the great importance
of protectionism against cost-efcient
artisan-produced Asian textiles: Paul
Mantoux most clearly, when he wrote
about the 1700 and 1721 laws banning the
consumption of cotton textiles in England,
that when the import of Indian materials
was quite unrestricted the demand they
created already held out the promise of
success and fortune to whoever was ca-
pable of imitating them. After the prohi-
bition of 1700 these chances were greatly
increased (1948: 201). Needless to say
the later industrialising west European
countries and US ignored the free trade
theory of the classical economists and
preferred to take a leaf out of actual Brit-
ish practice by erecting tariff barriers
against imports from Britain.
It is a sad fact that the leading British
historians have not been able to come to
terms with their own imperial history with
an adequate degree of academic honesty,
even half a century after decolonisation.
The Cambridge Economic History of India
blandly ignores prolonged British protec-
tionism against Asian textiles, as do Deane
and Cole (1967), Hobsbawm (1968) and
Landes (1969) in their accounts, respec-
tively, of British industrialisation, and
technical change in textiles not so much
as a footnote is to be seen. For that matter,
in the Encyclopaedia Britannica (1984)
there is no account of the great Irish
famine of 1846-47 in the macropaedia en-
try on the history of Britain and Ireland
the reader has to go to the entry under
potato to nd any discussion of it! One
notable act of commission however was
that by Deane and Cole (1967) when
they left out re-exports entirely (four-
fths of re-exports were goods from
tropical lands) while calculating what
they inaccurately called the volume of
British trade in the 18th-19th century,
by adding up only the imports retained
within Britain and its domestic exports.
This is not the denition of trade given in
any textbook of open-economy macro-
economics (Dornbusch and Fisher 1990;
Krugman and Obstfeld 1994) nor is this
denition used by any international
body presenting trade data (UNCTAD,
World Bank, IMF). I have shown else-
where (Patnaik 1999) by recalculating
British trade series using the accepted
d enition of trade, namely, total imports
plus total exports, that by 1800 it was
60% higher than the gure given by
Deane and Cole. The distortion extends to
Kuznets (1967) when he gave the Deane-
Cole gures of 18th

century trade for
Britain, and failed to point out that the
gures were not comparable with his
gures for other countries which used
the accepted denition, thus misleading
a more recent writer like Ippei Yamazawa
(1990) into stating that early Meiji Japan
was trade-open as Britain in 1800. In
fact with the correct, comparable trade
denitions the formers trade/GDP ratio is
14% and Britains 54% at the stated dates.
Unemployment in
the Capitalist Core
We can calculate from Bagchis estimates,
that if the relative importance of traditional
manufacturing in Gangetic Bihar had
remained unchanged from 1809-13 up to
1901, the population dependent on manu-
facturing in those districts in 1901 would
have ranged from 2.17 million to 3.3 mil-
lion (depending on the authors alter native
assumptions) whereas the actual census
gure was 1.64 million. If in only a few
districts in Bihar the dependents on manu-
facturing employment by 1901 were bet-
ween half a million and over one million
persons less than should have been the
case in the absence of deindustrialisation,
the situation when we consider the
hinterland of the major ports in the whole
of British India may be imagined.
Looking at the global history of dis-
placement of artisanal production under
capitalist industrialisation raises deeper
questions, namely, whether labour ab-
sorption into the new factory sector was
actually high enough during classical
Industrial Revolution in the core countries
themselves. The answer to these questions
should cause disquiet for all those who
mistakenly think that developing coun-
tries like India or China can solve their
employment and livelihood problems
by following a market-driven capitalist
growth trajectory. The severity of labour
displacement under conditions of techni-
cal change, both at present and in the
past, has tended to be underestimated. It
is by no means the case that successful
industrialisation automatically led to the
absorption of all displaced artisans
within the national boundaries of the
countries which pioneered Industrial
Revolution two centuries ago. On the
contrary, the historical evidence points
to a growing reserve army of labour even
in the metropolitan centre from the late
18th through the rst four decades of the
19th century, even when it was undergoing
structural change towards a higher share
of employment and output in the manu-
facturing sector, and despite the fact that
its factory output of textiles, hence employ-
ment grew at double the rate permitted
by domestic demand, because it could
push a high and rising share of output
into forcibly open, unprotected colonised
markets. The reason is fast-rising labour
productivity which is a typical feature of
the capitalist investment process.
The early machines of the Industrial
Revolution in late 18th century England
were simple, but it is seldom appreciated
that their use entailed a truly pheno menal
rise of labour productivity and therefore
large-scale labour displacement. Tradi-
tional spinning occupied a much larger
number of workers than weaving did, as
was the case in India. So widespread was
female labour in traditional cottage spin-
ning that the very term spinster had come
to mean an unmarried woman. A single
spinning jenny innovated by Hargreaves
in 1765 and in increasing use by the 1780s
in the new manufactories, could have
80 spindles or more and displaced over
70 traditional spinsters. Jennies in use
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34
with as many as 800 spindles were
known. Although cotton textile factories
did represent a relatively new branch of
production their expansion made in-
roads into the market for light woollens
and displaced some labour from that
sector, while the use of machinery
e xtended to hosiery production as well
further displacing labour. It was not for
nothing that artisans in England started
destroying the machines, in particular
the knitting frames, which were taking
away their livelihoods, and the govern-
ment cracked down brutally by hanging
the leaders of the Luddite movement. Far
more serious was the later Chartist move-
ment the new working class faced the
threat of unemployment and was politi-
cally excluded. Acute social and political
unrest culminated in a premature upris-
ing under the Chartist banner which
shook the ruling class.
British Outmigration
Britain (which pioneered Industrial Revo-
lution) and its west European competitors
got out of the problem of fast growing
domestic unemployment and explosive
social discontent, mainly by exporting
abroad their petty criminals and unem-
ployed workers on a massive scale. A
precondition for this was external primi-
tive accumulation, namely, the seizure of
vast territories from indigenous inhabit-
ants in the Americas, South Africa and
Australia. Quite apart from the ethical
aspects of inicting violence upon other
societies, clearly such a massive land-grab
and outmigration is not an escape avenue
open to todays developing countries,
which are struggling with both the old
legacy of underemployment and the cur-
rent highly labour-displacing technical
change that is mandatory for its manu-
facturing capitalists who have to compete
in a once-again trade liberalised world.
Looking at the emigration data we see
that from 1821 to 1850, Britain accounted
for over three-quarters of the 3.4 million
permanent outmigrants from Europe. Its
share in total European migration dropped
to 57% during the period 1851 to 1880
but the absolute numbers were double at
4.6 million and doubled again to reach
nearly 9 million during 1881 to 1915. These
data relate not to the UK but to Britain, so
that Irish outmigration which became a
ood after the famine of 1846-47, is not
included. Considering the small 14 million
initial population of Britain in 1821,
the signicance of over 16 million out-
migrants by 1915, can be well appreciated.
On average, almost half the annual
increment to British population was
leaving the country for good every year,
decade after decade. A comparable rate of
outmigration relative to the 1961 popu-
lation for India would imply over 300
million Indians permanently leaving the
country in the half century from 1961 to
2011. The actual current size of the Indian
Diaspora is about 17 million.
External Primitive Accumulation
The greatest drawback of the writings of
Northern Marxist scholars on the devel-
opment of capitalism, is that they ignore
almost completely the demographic and
economic effects of European external
primitive accumulation, namely, the vio-
lent seizure of vast tracts of land with all
their timber, water and mineral resources,
from indigenous populations in the
Americas, South Africa, and Australia,
and the settling of west European out-
migrant populations in these lands. Capi-
talist industrialisation is hardly conceiv-
able without its history and continuing
practice of primitive accumulation.
Bagchi has dedicated his book to
Maurice Dobb and to Joan Robinson; I
had also dedicated my selection of papers
The Long Transition (1999) to Maurice
Dobb, the outstanding Marxist and ne
scholar, under whose supervision I had
the good fortune to work during the latter
part of my own doctoral research. But
looking back one realises that in his
classic work Studies in the Development
of Capitalism, Dobb limited the concept
of primitive accumulation, effectively to
factors internal to the economy including
those leading to the separation of the
peasant from the land. The acquisition at
cheap or zero price, of assets which are
concentrated in its hands by a class which
realises the asset later at a much higher
value thus enriching itself
witness the effects of the
dissolution of the monas-
teries in England and of
the rural land enclosures
was the internal mech-
anism on which Dobb fo-
cused following closely
Marxs own discussion of
the formation of the land-
less proletariat.
As regards the external sector the main
discussion was buying cheap to sell dear
by the monopoly chartered companies
engaging in long distance trade, where the
very high rates of prot made by these
companies were documented. What was
entirely missing however is the seizure
per se of vast land and associated resources
from indigenous populations, nor was
European migration mentioned anywhere.
The entire history of capitalism virtually
becomes Hamlet without the Price of
Denmark if past and ongoing processes
of external primitive accumulation, com-
prising land and resource grab of such
gross dimensions, are never mentioned
explicitly but simply taken for granted as
a kind of fait accompli not requiring dis-
cussion, as almost a natural back-
ground to the discussion of prices. There
has been a general tendency for Marxist
writers thereafter to either ignore or to
seriously underestimate the manifold im-
pact of external primitive accumulation
on European industrialisation in short
to ignore the very fact of imperialism.
Without the open frontiers to which
labour displaced by mechanisation could
not only migrate but do so by seizing larger
assets than they possessed in the home
country, neither stable social conditions
with adequate employment, nor rising
living standards, is conceivable for the
metropolitan population under capital-
ism. Despite captive colonial markets en-
suring much higher domestic output and
employment growth than would have
existed otherwise, the extent of displace-
ment from land plus technical change
Table 1: Emigration from Europe, 1821 to 1915 by Main Countries
Emigration from Europe
1821-50 1851-80 1881-1915
Number (%) Number (%) Number (%)
Europe 3.4 100 8.1 100 32.1 100
of which
Britain 2.6 76.5 4.6 56.8 8.9 27.7
Germany 0.6 17.6 2.1 25.9 2.2 6.9
Italy neg 0 0.2 2.5 7.8 24.3
Spain and Portugal neg 0 0.3 3.7 4.3 13.4
Austria-Hungary neg 0 0.2 2.5 4.2 13.1
Annual averages 1,13,000 2,70,000 9,17,000
Source: Kenwood and Lougheed (1971: 60), rearranged from Table 5.
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35
was so high, and inated the reserve
army of labour to such an extent that the
poorer inhabitants of the British Isles
voted with their feet in vast numbers to
get out of the country of their birth for
good, as indeed did professionals seek-
ing a better life. An impressive order of
outmigration is seen at a later date from
Italy, Spain and Portugal, and Germany.
Historical evidence thus does not
provide us the basis for a good prognosis
as regards todays developing countries
blindly trying to imitate the capitalist path
of development. The very fact of operat-
ing within a trade liberalised world with
global competition obliges the adoption of
the latest, most capital intensive and IT-
enabled technology resulting in jobless
growth and growing unemployment,
while at the same time the displaced have
nowhere to go. An alternative strategy
which focuses on generating employment
and livelihoods satisfying basic needs
within the country is eminently possible,
but it is absolutely conditional on oppos-
ing the advanced countries pressures
for free trade and free capital mobility.
Transfers from India to Britain
In the chapter titled Reections on the
Patterns of Regional Growth in British
India the author starts with an estimate
of the extraction of surplus from India by
Britain measured by Indias export surplus
to the world on merchandise account
between 1871-72 and 1938-39, taking data
for the major regions of British India ex-
cluding Burma. The merchandise export
surplus as a measure sui generis certainly
has some drawbacks pointed out by the
author, of underestimation of the enforced
transfer from India to Britain. Considering
the India-Britain trade alone, he mentions
that a part of imports from Britain met
the luxury requirement of the rulers,
and much of the rest being mandatorily
tied to British suppliers even when
Britain became uncompetitive, was often
overpriced. The true merchandise export
surplus with Britain, after factoring in
these adjustments, would be larger than
the nominal surplus before the 1830s and
would be a smaller negative balance after
that date than was recorded. By the years
preceding rst world war Indias im-
ports from UK varied between half and
two-thirds of its total imports while
B ritain took around a quarter of Indias
total exports. In a broader context as the
author states, the export surplus with
the world is the analytically correct meas-
ure to take since it provided the upper
bound to the foreign exchange which Brit-
ain could appropriate from India in order
to settle its own current account decits
vis--vis the rest of the world.
The unnecessary imports and their
overpricing can be set off against the
fact that some items of invisibles payments
to Britain, such as freight and insurance
were perhaps as unavoidable for India as
were such payments by sovereign nations,
by virtue of Britain being the world
nancial and shipping centre for much of
the period in question. We really need to
take the normal current account surplus
of India, namely, the true merchandise
surplus, minus net payments of normal
invisibles items, to get an idea of the
transfer. Since the nominal merchandise
export surplus is not the true surplus and is
too low, if we assume that the degree of
its underestimation roughly equals the
normal invisibles incomes, then the
nominal merchandise surplus can be
treated as an approximation to the cur-
rent account surplus. For example, if the
true merchandise surplus was around
four-fths of the nominal one, and normal
invisibles payments amounted to around
one-fth of the latter, the nominal mer-
chandise surplus then roughly reects
the current account balance.
Indias trade consisted of two parts, its
trade with Britain and its trade with the
rest of the world. India had a rising export
surplus on merchandise account with the
rest of the world, but was made to develop
a trade decit with Britain since its man-
ufactures were poured into the compul-
sorily open Indian market. But the surplus
with the rest of the world far exceeded
the decit with Britain, giving an overall
merchandise export surplus for India
which rose over time. To appropriate
Indias global foreign exchange earnings
from merchandise export surplus, all
Britain had to do was to administratively
impose tribute, namely items of invisible
charges payable in sterling which are never
found for any sovereign nation, their total
adjusted to be at least as large as the global
export surplus earnings. By rst world
war, India became the second largest ex-
port surplus earner in the world after the
US. By 1925 Indias export surplus was a
massive 93 million or about three-quar-
ters of the US export surplus of 126 mil-
lion that year, according to the UN Inter-
national Trade Statistics 1900-1960. No
matter what heights Indias merchandise
export surplus might reach however, the
administratively imposed charges were
always pitched at least as high or higher,
forcing India to borrow.
While Bagchi gives regional estimates
for Indias merchandise export surplus
(ve-year averages are presented in
Table 2.2, p 19), he does not total them
probably because the coverage is not
complete, and in any case his objective is
to show the regional variation in exploi-
tation. This is conrmed when we total
his regional estimates to obtain an over-
all estimate and compare with the export
surplus gures given by others for British
India (Table 2, p 35). The Bagchi series
shows clearly the surge in annual export
surplus in the 15 years before the rst
war, from Rs 20 crore to Rs 52.8 crore.
The even larger exports during the second
Table 2: Merchandise Export Surplus Earned
by India from the World (1871-72 to 1936-38)
Rs Million Million US Dollar Rs Million
Region Total (de Cecco) Equivalent Equivalent
(Bagchi Series) (de Cecco) (de Cecco)
1871-75 212.258
1876-80 223.513
1881-85 278.199
1886-90 254.153
1891-95 313.010 25.797# 125.54 386.2
1896-1900 200.854 23.196 112.88 347.2
1901-05 413.759 37.419 182.10 560.1
1906-10 477.700 39.844 193.90 596.4
1911-15 527.993 58.117@ 282.83@ 870.0@
1916-20 457.401
1921-25 717.417
1926-30 509.101
1931-35 173.854
1936-38 304.200
# Three-year average 1893 to 1895, @ Two year average,
1911, 1912.
Exchange rate (US Cents to 1): 486.65. Exchange rate (US
Cents to Rupee): 32.51 during 1901 to 1910 from UN source,
assumed here to be the same for 1891 to 1900.
Source: For the Bagchi series, we have totalled the regional
trade surplus data, Table 2.2 on p 19. For the sterling series
in second column, M de Cecco (1984): The International
Gold Standard, Table 10. These export surplus figures are
expressed in dollars converted in turn to rupees, in the third
and fourth columns. Rupee-dollar conversion rate from 1900
onwards is from UN International Trade Statistics 1900-60
(1962); accessed on 20 August 2011 from www.unstats.
un.org/unsd/trade/imts/Historicaldata1900-60.pdf Figures
in last column from 1891 to 1900 are approximate owing to
exchange rate fluctuations.
REVIEW ARTICLE
february 1, 2014 vol xlix no 5 EPW Economic & Political Weekly
36
half of the war is obscured by the ve-
year averages since there was an imme-
diate post-war import surge, the only time
India had an import surplus, which gets
included in the period 1916 to 1920. We
nd that the Bagchi series is in agreement
with the series built up by later estimators
as regards the general trend, but seems
to understate the absolute magnitudes
quite a bit, especially after 1895.
Marcello de Cecco (1984) presented
annual time series in current pounds
sterling of merchandise export surplus
for a shorter period, 1893-94 to 1912-13
reproducing the data from the Interim
Report of the Royal Commission on Indian
Finance and Currency, 1913. Expressing
this series as far as possible in ve-year
averages to compare with Bagchis esti-
mate and converting to dollars and to
rupees, interestingly we nd that the
commissions export surplus gures are
much higher assuming they have been
reproduced correctly (Table 2 last three
columns). A 25.8 million export surplus
for the three years ending in 1895-96,
more than doubles to 58.1 million in
the two years ending in 1912-13, which
means an initial sum of Rs 386 million
rises to Rs 870 million. Each of Bagchis
ve-year averages for the three periods
spanning 1896 to 1910 is smaller than
the commissions gures, but the gap is
the largest for the period 1896 to 1900
when the latter is higher by 73%.
Similarly the rupee trade series pre-
sented by K N Chaudhuri (1985) gives us
export surplus gures which are much
higher than the regional total of the
Bagchi series. Most puzzling again is the
period 1896-97 to 1900-01 when Bombay
shows a trade decit and the regional
sum is only Rs 200 million per year in
Bagchi whereas the Chaudhuri series for
the p eriod 1896 to 1901 averages Rs 315
million. The author might accept the
much higher total gures of export sur-
plus from these sources since his own
o bjective was not to arrive at the total so
much as to look at the regional varia-
tions. But so large is the difference for
some of the p eriods that one wonders if
as a result the regional picture itself
might alter somewhat. For the authors
conclusion on regional variation to hold,
the difference has to be distributed over
the regions in roughly the same propor-
tion as in his estimate, which is perhaps
not an unreasonable assumption to make,
but needs to be investigated further.
In a more recent book Bagchi (2006)
has given us fresh estimates of colonial
exploitation for 1871 to 1914, using a dif-
ferent conceptual basis, namely, adding a
certain proportion by way of prots on
trade, to the overall positive balance,
taking account of two parts merchan-
dise balance (always positive) plus gold
(treated as a commodity import and not
means of payment, and so negative).
These new estimates of transfer are con-
siderably higher in magnitude.
Property Relations
Let us end this review with a look at the
authors discussion of how existing property
relations were modied by the British in
I ndia. He points out very clearly and suc-
cinctly the basic difference between the
private property right which existed in Brit-
ain and the private property right the colo-
nial rulers introduced in India. In Britain,
the proprietors under freehold or copyhold
tenure did not hold the land under the con-
dition that they had to make regular annual
payments to the Crown or to some supe-
rior landlord and would have to forfeit their
property if they failed to make the payment
REVIEW ARTICLE
Economic & Political Weekly EPW february 1, 2014 vol xlix no 5
37
punctually...they paid a land tax, but they
paid the tax because they were proprietors,
and were not considered proprietors be-
cause they paid the tax.
The basic objective of the administra-
tive apparatus set up by the colonial gov-
ernment in India was to collect taxes,
pre-eminently the land tax hence the
term Collector for the district level
o fcer which persists to this day and
the additional objective was to maintain
and maximise the collections. The rea-
son, in this writers view, that a perma-
nent settlement of the land revenue was
made in the area colonised earliest,
namely, Bengal and some areas of Madras,
thus xing the states demand in per-
petuity, was that the political support of
an indigenous landed class was essential
for a handful of foreigners to maintain
and extend their rule.
Admittedly, the revenue permanently
xed was at a very high level with the
zamindars being assigned less than a
tenth of the assessment causing many to
default on payment, and lose their estates
which were put up for auction. But those
who weathered the initial shock and
the new purchasers of zamindari right
gained in the longer run with the spread
of cultivation and rise in prices. The
colonial state chose to give up p otential
revenue and create a parasitic class of
zamindars in Bengal which grew fat on the
unbridled exploitation of the peasantry,
because it needed the political support of
this class. How successful the strategy
was became clear during the great upris-
ing of 1857 the Bengal z amindars stood
solidly behind it, whereas large numbers
of the zamindars and talukdars of north
India who had lost their rights under the
periodic upward revision of revenue
demand, not only participated in the
great rebellion but often provided leader-
ship to the sepoys. Eric Stokes (1970) had
estimated that at least one-third every-
where, and as much as one-half in some
parts of the Doab, of hereditary estates
had changed hands in the two decades
preceding the great rebellion.
The complete subordination of the
right of the zamindars to the right of the
state outside the permanently settled
areas was perhaps not a unique feature
of colonial rule, which in some respects
modelled itself on pre-existing Mughal
practice. We know from Irfan Habibs
The Agrarian System of Mughal India
that the zamindars right or malikana was
recognised to be one-tenth of the assessed
revenue and additionally nankar to the
extent of 5% to 10% was allowed, thus
the legal share of revenue going to the
zamindar varied from 15% to 20%. The
main difference made by the colonial
revenue system, as the author points
out, was that other than in Bengal, every
30 years or so the state demand was in-
creased, it was in cash and no remission
was allowed, putting the kind of extreme
stress on the peasantry that the author
documents at length. Since the objective
of the colonial state was to extract the
maximum possible economic surplus
through taxation, it could hardly be ex-
pected to give up potential revenue else-
where after it had acquired a strong
revenue and political base in Bengal.
The author documents in detail the
process of indebtedness and peasant
resistance particularly in the Deccan,
laying stress on the exorbitant interest
rates charges by the outside moneylenders
who supplanted local vanis. However, the
very fact that the moneylenders could
acquire such power over the peasantry,
had to do with two factors mentioned
but not adequately explored by the Deccan
Riots Commission (DRC) or by the Famine
Commissions excessive revenue demand
rigidly payable in cash at specied dates,
and the commercialisation of agriculture
which drew the peasant into the vortex
of world prices or more accurately, the
switchback of world prices. That revenue
demand itself was impossibly high in
relation to land productivity is clear from
the derivations we make in Table 2 using
the data the author gives from the DRCs
detailed study of 12 villages in Poona and
Ahmadnagar, which showed that the
annual land revenue demand of the
government on the peasants totalled
Rs 10,603. The DRC ascertained that the
sale/purchase value of dry land was
about seven times the assessed revenue
while that of irrigated land was between
15 and 20 times the revenue. Taking an
average the DRC concluded that the
purchase price would not exceed 10 times
the assessment, namely, amount to less
than or up to Rs 1,06,000. From this
i nformation we can try to derive the share
of revenue in the cultivators net income.
The Value of Land
It is customary to express the land value
in terms of the number of years in which
the actual purchaser could expect to
recoup, by way of income from the land,
his outlay of money in purchasing land or
land right, and this depends on the preva-
lent rate of interest, which stands for the
rate of return in alternative use of the
funds. The value of land can be ap-
proximated by the simple expression a/i
where a is the annual income to the actual
purchaser of land and i the rate of interest.
If annual income a is say 100 and i is
12.5%, then the capitalised value of the in-
come, namely, the acceptable land price is
at most eight times the annual income and
land is said to be worth eight years pur-
chase. The higher the prevalent rate of
interest, the shorter would be the time
p eriod in which the purchaser would ex-
pect to recoup his purchase outlay hence
the smaller would be the latter as a multi-
ple of income. If annual income is expected
to rise over time, the purchaser would
factor this in to pay a higher price.
Even though colonial ofcialdom was
not the purchaser of land at all, it was so
greedily xated on the states income,
namely, the revenue that it could ex-
tract, that it always confusingly talked
of land value only as a multiple of reve-
nue assessed, and complained of low
land price. These ofcial statements were
quite irrational from the viewpoint of
economic logic, for the price of land was
not a multiple of the revenue but of an-
nual net income minus revenue payable.
Any purchaser of land, say a well-to-do
peasant with some surplus funds, obvi-
ously would be interested in the income
he himself could get, which was not
even the net output value (namely, gross
output value from the unit of land minus
all production costs except subsistence
of the family). The actual retained in-
come would be smaller, namely, the net
output value minus revenue payable,
and it is this which was capitalised at the
going rate of interest (namely, multi-
plied by the reciprocal of the interest
rate) to obtain a price which could be
REVIEW ARTICLE
february 1, 2014 vol xlix no 5 EPW Economic & Political Weekly
38
considered r easonable, and not entail a
loss for the purchaser. Thus the actual
observed land prices were not low at
all, once we remember that owing to
heavy revenue demand the purchaser
expected to retain a much smaller in-
come than net output. But how much
smaller is the question, namely, what
was the share of revenue assessed to the
producers net income.
Since the authors quote from DRC in-
forms us that revenue assessed worked
out on average about one-tenth or less of
land value, then consistently with this
fact, for a given net income of 100 from a
unit of land, we can infer the break-up of
net income between revenue and income
retained for different levels of the rate of
interest, as shown in Table 3. The specic
numbers of columns 3, 4 and 5 emerge
from applying the DRC observation that
land value is no higher than 10 times rev-
enue assessed, subject to the condition
that land value must be the capita lised
value of net income less revenue. For a
given net output and given interest rate,
the higher the revenue demanded, the
lower would be the acceptable land pur-
chase price. For a given net output and
given revenue demand, the higher the
rate of interest, the lower would be the
acceptable price. If the purchaser did not
have to pay the land revenue the land
prices would be the capitalised value of
Rs 100 and range from 500 to 1,000 for
different interest rates, but because
revenue has to be paid the land price
ranges from 333 to 500, and there is no
economic basis for terming these prices,
10 times the revenue in each case, as low.
The realistic range of interest rates
was probably 12.5% to 15% which meant
that revenue demanded was 40% to 45%
of net output. No wonder the peasantry
got indebted the sheer burden of revenue
demand, that too payable at rigidly xed
dates in cash, was tailor made for the
moneylender to obtain a stranglehold.
Elizabeth Whitcombe (1972) later dis-
cussed the role of cash revenue demand
in promoting nancial stress in the United
Provinces at length while this writer
(Patnaik 1999) linked revenue demand
and commercialisation together in the
mechanism promoting peasant indebted-
ness not only to moneylenders but also
to merchants who used the peasants need
for cash to tie loans to growing more ex-
portable crops in place of foodgrains.
If the DRC was off the point in thinking
land prices in the Deccan were low, more
absurd still was the colonial governments
continual lament in 18th century Bengal
that when a defaulting zamindars estate
was put up for auction the price realised
was very low, for it did not cover even
a single years revenue arrear and was not
more than 70% to 80% of the latter. As a
matter of fact, any purchaser of a zamindari
would have been foolish indeed to pay
more; in fact the prices quoted were sur-
prisingly high, not low at all. This is be-
cause the zamindars own income was
only one-eleventh part of the total sur-
plus, termed the rental; the remaining
ten-eleventh being revenue payable to the
colonial government. Thus if the estimated
rental was 110, the zamindars income was
10 and revenue payable 100. A purchaser
prepared to pay 70 for the zamindari,
Table 3: Share of Revenue in Given Net Output
for Varying Interest Rates
Annual Rate Net Income Revenue Net Income Land Value
of Interest i % Annual Annual Less Revenue, a ( a/i )
1 2 3 4 5
10.0 100 50 50 500
12.5 100 44.5 55.5 444
15.0 100 40 60 400
18.0 100 35.7 64.3 357
20.0 100 33.3 66.7 333
Derived from Deccan Riots Commission observation on
land price being at most 10 times revenue assessment.
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REVIEW ARTICLE
Economic & Political Weekly EPW february 1, 2014 vol xlix no 5
39
was effectively capitalising his own ex-
pected income of 10, at an interest rate
of 14.3% and one prepared to pay 80 was
capitalising the income at 12.5%.
Given that the previous zamindar could
not collect enough revenue and defaulted,
and given that prevalent interest rates
probably ranged higher than 12.5% to
14.3%, the purchase prices recorded in
terms of seven-tenths to four-fths of
one years revenue arrear, far from being
low, are denitely on the higher side.
Only rich parvenu purchasers with inde-
pendently accumulated funds from other
activities, who expected to compensate
the inevitable initial revenue decits out
of these funds, would buy zamindaris in
the expectation of future rise in income.
This was indeed the case: an example is
the famous Tagore family which made
prots from the opium trade, mining and
steamship ventures before purchasing
zamindaris. Most teachers of Indias eco-
nomic history however to this day choose
to don the colonial administrators con-
ceptual blinkers, and routinely inform
their students that zamindari auction
sale prices were low when rather the op-
posite was the case. The fact is that the
colonial administrators wanted to have
their cake and eat it too: to extract exor-
bitant revenue gobbling up most of the
income, and after evicting the heredi-
tary occupier for inability to pay, then
expect potential purchasers at auctions
to shell out an irrationally high price so
that they could make good the revenue
loss created by their own avarice.
Price Volatility and
Peasant Indebtedness
The second factor which affected the
peasantry badly was being exposed
through free trade to volatile global prices.
The clearest example and one with great
contemporary resonance, is the sharp rise
in raw cotton prices as British demand was
diverted, among other sources to India
with the outbreak of the US Civil War
from 1861 and cessation of cotton imports
from the US. The rapid expansion of area
and output under cotton in the Deccan
was at the expense of foodgrains which
also saw unprecedented price rise, and
as R S Rungta (1970) informs us, a spec-
ulative nancial, land and reclamation
boom started in Bombay. With the end
of the Civil War the high prices col-
lapsed, peasants who had borrowed not
only to grow cotton but also for other
purposes given the general boom condi-
tions, were unable to repay even the inter-
est on debts: within a few years accumu-
lated debts were such that there was im-
minent danger of creditors foreclosing
and seizing most of their land. The Dec-
can Riots were a response to a crisis
situation created with the lag of some
years by the collapse of the cotton boom,
which compounded the already high
level of indebtedness. The author gives
the DRC estimate of outstanding debt of
the peasantry which owing to usurious
interest rates was several times the esti-
mated land value.
In the early 1990s in India, trade liber-
alisation and primary export promotion
became the mantra, as in so many other
developing countries which came under
the sway of Fund-Bank neo-liberal policies
and free trade dogmas. A cotton grow-
ing boom was induced by the doubling
of global cotton prices over ve years to
1995 and peasants expanded cotton area
rapidly on the basis of borrowed funds,
at the expense of foodgrains area. With
the subsequent halving of global cotton
prices, within a few years hopelessly in-
debted farmers started committing suicide,
which was documented separately as
farmer suicides in police records from
1998. These indebtedness induced suicides
of commercial crops producers not only
cotton, but later tea, coffee and pepper
continue to date. While advanced country
political leaders and ofcials of the Fund
and the Bank can be expected to know
little of the economic history India, there is
no justication for Indias present leaders
facilitating the economic re-colonisation
of agriculture by exposing farmers to
global price volatility. It is a matter for
reection and analysis, that the Deccan
farmers rioted and burnt the evidence
of their indebtedness over a century ago
whereas in the modern era farmers in the
Deccan continue to be driven to suicide.
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