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  How Did Historically Prosperous India Get so Poor in the First Place  
 

 

By: Hari Sud
May 20, 2007
V
iews expressed here are author’s own and not of this website. Full disclaimer is at the bottom.

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Part 1 – Historical Indian Economy
India was not poor, not thru the known history of mankind. It has been lush green with skills to administer itself, technology to cloth itself and landmass to grow food to feed itself. It is in the last 150 years before independence, that India became a basket case. Its blame lies on itself for not being prepared to defend itself against the imperial ambitions of the Europeans and quarrelsome tendencies, within, which invite the outsides.

Surrounded by impenetrable obstacles on all sides India did not need to develop high skills in warfare. Early warfare ended as soon as Aryans managed to establish their hegemony over the peninsula. Buddha’s message (600 BC) of turning the other cheek was the last straw which turned otherwise brave Indians into pussycats. When Alexander came (325 BC), unlike what the western historians tell you, all his land conquest was followed by money grab. His Persian conquest resulted in trainloads of money and goods being transferred to Greece. He attempted the same in Turk’s land (north of Afghanistan) but retreated. There were no plum pickings there. Instead he turned his attention towards India.

In one tactical move across Indus, he got victory and money from the Jhelum king. The point is that India had always been prosperous. Outsiders always wished to steal it. Hence they kept coming in next two thousand years. Some took the money and left, others made it a home. Lack of military skills had made India an easy target for conquest.

Indian Economy 1000 BC till 1000 AD
Indian economy of this era was based on agriculture, textiles and animal husbandry. Cotton and cotton spun cloth together with grain were the main items of internal trade. Farming and land ownership were the main occupations, followed by craftsmanship and trade. Herodotus the Greek historian, found cotton in India and took it to Europe. He loved it and called it the wool, which grows in the fields. Prior to that Greek as well as rest of the Europe, dressed in animal hides.

King Ashoka is believed to have ruled ten million subjects and had maintained an army of one hundred thousand men. Towards the later part of his rein, his conversion to Buddhism spelled disaster. But the impenetrable walls on all sides prevented any outside interference for a thousand year (Alexander was a distant memory after the flight of his remaining garrison from India). Hence India was safe and its economy secure (Jataka Tales).

At about 1000 AD, before the Muslim invasion across Hindukush Mountains, India had prosperity comparable to China. The latter had similar successes through out the ancient history. They benefited more with silk trade. India lost the cotton monopoly when the west learnt to grow and spin it. Chinese guarded its silk know-how well and retained the advantage. With trade and technology India & China were the economic powerhouses. Rest of the Europe was passing through the Dark Ages.

Economy During the Muslim Rule (1200 AD till 1700 AD)
Politically, 1100 AD to 1700 AD was not a stable time as the Muslim invaders looking for money (Mahamud Gaznavi & Ghori) invaded India. They looted treasuries and then inflicted untold atrocities on the people. Still the economy prospered. Afghans and Turks who ruled India had no penchant for economy. They left it to the Indian merchants, financiers and landowners of their own. Invaders got their money either by brute force or by taxing the land.

During the Akbar’s rule (1560 AD) the first land reform took place. He wished to stabilize the Turkish rule and hired local Lala Toddar Mull to reform the system. Toddar Mull, initiated “Patwari” system, which is still in existence today. He organized the merchants and wholesalers and established well-organized “Mandis” for trade and exports. As a moneylender himself, Toddar Mull organized recognition of lender’s right for interest in lieu of capital borrowed. Prior to that, interest payments were not well organized.

All these reforms lead to an explosive growth in Indian economy. Akbar ruled 50 million prosperous subjects and a huge economy. At that time India and China together accounted for 50% of the world’s GNP.

A major economic catastrophe occurred when Nadir Shah (1739), a Persian buccaneer invaded Delhi and decamped with booty of $1 billion in today’s money. He was so happy with the take that he remitted all taxes of the Iranian people for next five years. Much of the royal gold, silver and precious stones were lost forever. Still, within 20 years India bounced back. Unencumbered economy accumulated wealth very quickly.

In come the Portuguese, the British and the French
Major plunder of India began with the arrival of the European powers in the Indian Ocean. Portuguese came first looking for spices (1500 – Vasco de Gama). They had discovered the sea route via Cape of Good Hope. They asked for an innocuous looking trade agreement to trade together with trading posts. British could not let the Portuguese and the Dutch have monopoly and they followed next (Sir Thomas Roe –1616).

Trade was beneficial for all sides. Indian merchants not knowing the Portuguese, Dutch and the British business practices asked for settlement in gold & silver. All these powers had abundance of gold; all looted from the Americas. They very willingly made that settlement. India in about 150 years of trade with the west (circa 1750) had accumulated a huge horde of gold & silver.

British wished to grab that gold & silver back. They waited and found their opportunity. Mogul Empire was breaking apart. India was unable to protect itself. Hence they initiated their first conquest in Bengal. Battle of Plassey (1757) was fought. It was never a battle in the real military terms. It was a battle of wits and intrigues. British bribed one of the opposing sides general and carried the day.

In the process, British seized from the Bengal King, a monstrous booty of Pound Sterling 20 million. In today’s terms it is worth $500 million. The most important aspect of this victory was not only the money grab but grabbing the prime minister ship of the state (Diwani). As a prime minister they now had a hold on future revenues, commerce, trade and livelihood of the people.

They repeated the same story, when they grabbed Avadh province, where the loot was twice as big. Other parts of India suffered the same fate. Sikh kingdom in Punjab lost its treasury and the prized Koh-e-Noor. Transfer of cash and precious metals by British back to England towards the beginning of 19th century reached tremendous proportions. It was all happening at the expense of Indian economy. But that was not all; the biggest damage was yet to come.

Part 2 – Damage British Inflicted on the Indian Economy
British Rule & Economic Misery They Inflicted on India -- Muslims are not to be blamed for mismanaging Indian economy from 1200 AD onwards. They allowed it to prosper. They got their share with hard-nosed attitude and kept away from the intricacies of trade, commerce, finance and ownership. Prosperity was all around. British were inheriting a strong and a prosperous nation.

I will quote the British Governor General Lord McCauley’s speech to the British Parliament on Feb 2, 1835

"I have traveled across the length and breadth of India and I have not seen one person who is a beggar, who is a thief. Such wealth I have seen in this country, such high moral values, people of such caliber, that I do not think we would ever conquer this country, unless we break the very backbone of this nation, which is her spiritual and cultural heritage, and, therefore, I propose that we replace her old and ancient education system, her culture, for if the Indians think that all that is foreign and English is good and greater than their own, they will lose their self-esteem, their native self-culture and they will become what we want them, a truly dominated nation".

Lord McCauley did institute school system in India, which for 150 years produced clerks.
As soon as the British gained the Diwani of Bengal in 1757, they set about the task of dismantling the Indian economic structure. Textiles in Bengal were the first to be dealt the deathblow. Other commercial segments came one after the other. Wherever they defeated a king, economic hardship was instituted. A complete breakdown of local economic structure was precipitated. From 1857 onwards, the British crown ruled over India. Each Viceroy’s main task was to transfer money to England. Since all state treasuries had already been looted, other means had to be developed to transfer the money to England.

Just about the Battle of Plassey, Industrial Revolution had begun in England. Manufacturing on larger scale had replaced cottage industry & farming. Factories had to be kept humming and products sold at profit. The best place the British could find to export their manufactured goods was India. Hence, India’s commercial, manufacturing and agricultural sectors, which had existed for thousands of years, were to be completely dismantled. This they went about with great finesse. First they removed artisan from the manufacturing base, then they denied the critical raw materials and finally taxed any product, which still managed to come to the market. Life was made miserable all around.

What was the shape of Indian Economy in 1800?
In 1750s, prosperous Indian economy became the backbone of international trade. A Dutch, British or French ship owner could borrow money from Indian Banyan or Seth (my forefathers included) on the going interest rate, load his ship with merchandise in Surat, Cochin or Madras, take it to China, Indonesia or Japan and trade his goods at profit. Return to Surat, pay the Banyan or Seth the money he owed, and reload for an onward journey to Europe or East. In a few voyages, the ship owner and his crew had made enough money to pay off all debts in England or Holland and become rich.

There was no central bank; hence the concept of Jagat Seth (Universal Money Lender) existed. He was the master banker. Lesser bankers turned to him when in trouble. He also had high connections with the king, hence maintained a fair arrangement between the king and the commerce. Each geographical area had a Jagat Seth.

Indian economy although almost all of it privately owned, was a hallmark of prosperity. Decline began soon after the success of Industrial Revolution in England. This impact started to be felt, as British factories were kept busy at the expense of Indian cottage industry. All Indian produced goods were heavily taxed. This was done to promote European goods. European voyages of the trading ships multiplied several fold. They carried Indian raw materials and brought back finished goods. All the forgoing was good for England and bad for India.

Trade balance began to shift heavily in England’s favor. In 50 years after Plassey, Indian economy just began to rot away. British had very cleverly blocked French & Dutch from India; hence all gains were British only.

Hence a population base of about 100 million, in 1800, previously prosperous had suddenly found themselves at the mercy of a double-edged sword. One edge represented the declining authority of Mughal Empire and other edge represented British who were slowly dismantling the economic structure in India. Worst of all, there was no help in sight. British completed their conquest in 1857; by that time India was set up as a basket case. It received finished goods from England at high price. In return sold raw materials at throw away prices. The whole society was moving into poverty. Next 100 years were the classic case of systematic looting of the nation.

British Crown Era Begins in 1857 and So Began the Dramatic Rise in Poverty Thirty years after British conquest of India, the period 1870 to 1900 is known to be the golden age of Queen Victoria in England and rightfully so. Her representative (Viceroy) in India was doing a fine job of transferring wealth from India to England. Smart as they are, the British set about documenting all their Indian holdings on the lines of Dooms Day Book of William the Conqueror in 1086. They called it “ The Imperial Gazetteer” of 1881. It was revised again as British penetration in the far-flung areas was completed. It is a 25-volume exhaustive description of India. Its 3rd Volume gives all possible details of economy, trade, balance of payment, census etc. I give you a few quotes from this volume.

1903-04 Data is Lakh Rupees (Rupees of that Era)

Items Imports Exports
Apparels 172 16
Raw Cotton 5 2438
Cotton Goods 31288 10
Wool Items 215 27

The above is mostly textile related data. India sent to England raw cotton. In return, imported manufactured goods made out of that cotton. India paid 31,680 Lakh Rupees to import textiles. In return a meager, 2, 491 Lakh Rupees were paid for its raw material supplied. Hence it was 13 times advantage, Briton.

The story was repeated for metals and minerals the same way.
Items Imports Exports
Metals Wrought Iron 992 30
Hardware /Machinery 1189 5
Dyes & Chemicals 484 13
Precious Stones 152 9

In the above category, British advantage was 50 times. The story got repeated year after year for one product category after another. India had advantage only in Jute production and manufacture of Jute goods. British did not wish that industry in its midst.

A rough estimate, in many references indicates that about a Billion dollars in today’s dollars was transferred to Britain every year for about a hundred years. With this much drain over such a long period of time India was turning into a poor man. And when the British left, there was nothing else left for them to loot. If they wished to continue with their ways, then cost of transferring this amount of monies may exceed the cost of containing the independence movement, which was already afoot. Hence they left.

How Did Gandhi Break Some of These British Monopolies?
Gandhi understood all the British machinations. First he tackled the British in the textile industry. It was a crime to spin cotton into yarn and weave yarn into cloth in India. It hurt factories in Manchester. Gandhi en-mass began spinning “Charkha” and forced the British to relent.

Second the metal working business. India never had any serious metal working skills other than gold & silver smithy. Steel works were unknown. In order to encourage steel / wrought iron industry, he persuaded major expansion of iron making in India (Jamshedpur). British did not like it, but two wars in the 20th century, made them to relent. Still they prevented any superior steel making skill transfer to India; least it hurt Birmingham & Sheffield.

Third, the British had monopolized the salt quarry business. Realizing its importance, they had banned any salt making accept the quarries, which they owned. This very important ingredient of living in hot climate was their way to maintain control on the teeming masses. Gandhi broke that monopoly by organizing a Dandi March and picking up salt from the sea. Later British relented and gave up their monopoly.

Gandhi thought and carefully implemented economic successes. These endeared him to the people. He later used his prestige and popularity to gain full independence in 1947.

When the British left in 1947, How was the Economy
India was already very poor and on top of it, suffered the trauma of partition. It had 350 million souls and an economy of $55 Billion in 1947. Famines visited often. British always blamed it on the inept Indians. British never wished to be reminded that India’s predicament was their creation and if they are rich, it is all India’s money they have.

India began the slow task of rebuilding. In 60 years, economy is reaching a trillion dollar mark. It is a slow growth, but it is moving in the right direction. The over-burden of population is slowly turning into a blessing. The younger workforce is much sort after. India may not catch the Europeans and the Americans economically, but it will be in their midst, sooner or later. They still have the technology monopoly, but not for long.

Conclusion
Genesis of India’s poverty lay in the sunset days of Moghul Empire. Outsiders, mostly British came to loot and they did a fine job for themselves. Now, India’s success will be heralded when it reaches reasonably close to the West in standard of living and breaks their technology monopoly. One thing is certain, India has to keep its powder dry and gun barrels clean, least another power tries to sneak in.


Hari Sud

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