British Economic Policies

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Old watercolour of tall brick cotton mills with smoking chimneys beside a canal in Manchester
Cotton mills at Ancoats, Manchester, about 1820. Machine-made cloth from mills like these flooded India after 1813. It helped ruin India's handloom weavers. Image: Unknown artist, about 1820 · Wikimedia Commons · Public domain

The British came to India as traders. After Plassey (1757) they became rulers. They then used their power to run India's economy for Britain's benefit. Indian cloth lost its markets. Farmers grew crops for export. A part of India's wealth flowed to Britain every year. This page explains each step in simple words.

1757
Plassey
Company wins Bengal
1765
Diwani
Right to collect Bengal's revenue
1813
Charter Act
Company's India trade monopoly ends
16 Apr 1853
First train
Bombay to Thane

From traders to rulers

Plassey, Buxar and the Diwani of Bengal.

At first the Company bought Indian goods with silver brought from Europe. Cloth, spices and indigo went to Europe. Then the Company won wars in Bengal. Now it could collect Bengal's land revenue itself. It used this Indian money to buy Indian goods. So Britain got the goods without sending silver.

HOW THE COMPANY TOOK BENGAL'S WEALTH
  1. 23 Jun 1757
    Battle of Plassey

    Robert Clive defeats Siraj-ud-Daulah, the Nawab of Bengal.

  2. 22 Oct 1764
    Battle of Buxar

    The English defeat Mir Qasim, the Nawab of Awadh and Mughal emperor Shah Alam II.

  3. Aug 1765
    Diwani of Bengal

    By the Treaty of Allahabad, the Company gets the right to collect revenue of Bengal, Bihar and Orissa.

  4. 1770
    Great Bengal famine

    Revenue was collected hard even in drought. A very large number of people died.

  5. 1793
    Permanent Settlement

    Cornwallis fixes Bengal's land revenue forever with the zamindars.

THREE STAGES OF BRITISH ECONOMIC POLICY
Trade stage
Free trade stage
Finance stage
Rough period
1757–1813
1813–1858
After 1858
Main aim
Monopoly trade; take Bengal's revenue
Sell British factory goods; buy raw material
Invest British capital; earn interest
Mark of it
Diwani (1765)
Charter Act 1813
Railways, banks, plantations
Historians often divide colonial economic policy into these three stages. The dates are rough, not exact.

Free trade and the fall of Indian industry

Why India's weavers lost their work.

Before British rule, India was one of the world's great makers of cotton and silk cloth. Then Britain had its Industrial Revolution. Its machines made cloth fast and cheap. British factory owners wanted India as a market for this cloth. They also wanted India's raw cotton.

ONE-WAY FREE TRADE
  1. Trade opened
    Charter Act of 1813
    The Company loses its monopoly of trade with India. Only tea and the China trade stay with it.
  2. British cloth enters India
    It pays very low duty in India. Indian cloth paid heavy duties in Britain.
  3. Indian weavers lose customers
    Handmade cloth cannot match cheap machine cloth, at home or abroad.
  4. Weavers go back to the land
    More people now depend on farming. This is called deindustrialisation.
  5. Company stops trading
    Charter Act of 1833
    The tea and China monopolies also end. The Company only rules, it no longer trades.
KEY TERM
Deindustrialisation

A country that had industry loses it. In India, old crafts like handloom weaving declined under British rule. New modern factories did not grow fast enough to give work to the ruined artisans. So more people fell back on agriculture.

Cheap British cloth→Indian handloom loses market→Artisans jobless→Pressure on land
Old engraving of Manchester seen from a hill, with dozens of factory chimneys smoking
Manchester, called "Cottonopolis", in a 19th-century engraving. Its mills spun cotton from India and America and sold cloth to the world, India included. Image: Unknown engraver, 19th century · Wikimedia Commons · Public domain
India's share of world income (GDP)
1700
24.4%
1820
16%
1870
about 12%
1950
4.2%
Estimates by the economic historian Angus Maddison, for undivided India. They show a long fall in India's share of the world economy.
QUICK FACT

Laissez-faire means "let it be": the state should not control trade. This free-trade idea is linked with Adam Smith. Britain used it to open India to its goods, but it did not protect Indian industry.

QUICK CHECK
PYQ · Punjab Police SI 2023 Under which of the following Charter Acts did the monopoly of the East India Company on tea trade in India and trade with China end?
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QUICK CHECK
PYQ · PPSC SEVE 2016 Who among the following is associated with the theory of Laissez faire?
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Cash crops, railways and famines

Farming for export, carried to the ports by rail.

Farmers were pushed to grow crops for sale and export, not for their own food. This is called the commercialisation of agriculture. Land revenue had to be paid in cash, so farmers needed crops that sold. Often the profit went to traders, moneylenders and planters, not to the farmer.

Bengal, Bihar
Indigo

A blue dye. European planters forced peasants to grow it.

Bombay, Berar, Punjab
Cotton

Raw cotton went to British mills.

Bengal
Jute

Used for sacks and ropes.

Assam
Tea

Grown on British-owned plantations.

Bihar, Malwa
Opium

Sold mostly to China.

Punjab
Wheat

Grown in the new canal colonies for sale and export.

Main cash crops and where they grew.

INDIGO: FROM NIL DARPAN TO CHAMPARAN

In 1859–60 indigo peasants of Bengal refused to grow the crop. This is the Indigo Revolt. Dinabandhu Mitra's play Nil Darpan (1860) showed the planters' cruelty. In Champaran (Bihar), planters made peasants grow indigo on 3 parts in every 20 of their land (the tinkathia system). Gandhi's Champaran Satyagraha (1917) was his first satyagraha in India.

Old photograph of a train crossing a long stone viaduct with many arches at Thane
A train on the Thane (Tanna) viaduct, photographed between 1855 and 1862. India's first passenger train ran from Bombay to Thane on 16 April 1853, about 34 km. Image: William Johnson, 1855–62 · Wikimedia Commons · Public domain
  • Railways began under Lord Dalhousie. British companies built them with a guaranteed interest paid from Indian revenue.
  • Lines mostly joined the ports to the inland farm areas. Raw material went out; British goods came in.
  • Dalhousie also built up the telegraph and passed the Post Office Act of 1854, with a uniform postal rate.
  • Railways later helped Indians travel, meet and organise, which helped the national movement.
WHY FAMINES HIT SO HARD
  1. Less food grown
    Good land goes to cash crops.
  2. Revenue due in cash
    The tax does not wait for a good harvest.
  3. Monsoon fails
    Poor families have no grain or savings.
  4. 1876–78, 1896–97, 1899–1900
    Famine
    Millions die in the great famines.
  5. Famine Commissions
    Strachey (1880), Lyall (1898), MacDonnell (1901). A Famine Code followed in 1883.
Four round brass and copper tokens with a hole in the middle, marked Famine 1874 and Relief Token 1876
Famine relief tokens from the Bihar famine of 1874 and the Great Famine of 1876–78. People on relief work got tokens like these to exchange for grain. Image: Government of India Mint, 1874 and 1876 · Wikimedia Commons · Public domain
QUICK CHECK
PYQ · PSSSB Excise Inspector 2021 At which of the following places did Mahatma Gandhi start a Satyagraha against the oppressive plantation system?
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The drain and the first factories

Where the money went, and who started modern industry.

Indian leaders said British rule took wealth out of India with nothing coming back. Dadabhai Naoroji called this the drain of wealth. Money left through Home Charges (costs paid in Britain from Indian revenue), salaries and pensions of British officers, and profits sent home.

Studio photograph of Dadabhai Naoroji in a dark cap and coat with a white beard
Dadabhai Naoroji in 1892, the year he became the first Indian elected to the British House of Commons. His book Poverty and Un-British Rule in India (1901) set out the drain theory. Image: R. M. Richardson & Co., 1892 · Wikimedia Commons · Public domain
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PYQ · PPSC OHE 2016 Dadabhai Naoroji wrote a detailed critique of:
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MODERN INDUSTRY IN INDIA
  1. 1854
    First cotton mill

    Started at Bombay by Cowasji Nanabhai Davar.

  2. 1855
    First jute mill

    At Rishra, Bengal.

  3. 1881
    First Factory Act

    Under Lord Ripon: limits on child labour in factories.

  4. 1907
    Tata Iron and Steel Company

    Set up at Sakchi, later Jamshedpur.

  5. 1927
    FICCI founded

    G. D. Birla and Purshottamdas Thakurdas start the Indian businessmen's federation.

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PYQ · PPSC LO 2015 The first Indian Factory Act was passed by:
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PYQ · PPSC TM 2015 The Federation of Indian Chambers of Commerce and Industry (FICCI) was founded in 1927 by:
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How nationalists answered

Swadeshi, boycott and khadi.

The nationalists' answer to cheap British goods was Swadeshi: buy and use Indian-made goods. Its partner was boycott of foreign goods. Later Gandhi made the charkha (spinning wheel) and khadi symbols of this answer.

7 Aug 1905
Boycott resolution

A meeting at Calcutta Town Hall against the partition of Bengal resolves to boycott British goods. The Swadeshi Movement begins.

Jan 1930
Gandhi's 11 points

Before the Civil Disobedience Movement, Gandhi sends Lord Irwin 11 demands, many of them economic.

Some of Gandhi's 11 demands (1930)Economic or political
Cut land revenue by 50%Economic
Abolish the salt tax and the government salt monopolyEconomic
Protective tariff on foreign clothEconomic
Cut military spending and civil salaries by halfEconomic
Total prohibition of liquorSocial
Release political prisonersPolitical
QUICK CHECK
PYQ · PPSC DSSO 2018 The 'Swadeshi' and 'Boycott' were adopted as methods of struggle for the first time during the
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Everything on one look

Trade, industry, farming, railways and the Indian answer.

COMPANY AND TRADE
  • Plassey 1757: Clive vs Siraj-ud-Daulah
  • Buxar 1764 → Diwani 1765 (Bengal, Bihar, Orissa)
  • Charter Act 1813: India trade monopoly ends
  • Charter Act 1833: tea and China trade end; Bentinck first GG of India
  • Laissez-faire: Adam Smith
  • India's world share: 24.4% (1700) → 4.2% (1950)
FARMING, RAILWAYS, INDUSTRY
  • Cash crops: indigo, cotton, jute, tea, opium
  • Nil Darpan (1860); Champaran (1917)
  • First train: Bombay–Thane, 16 April 1853
  • Famine Commission: Strachey 1880
  • First Factory Act: Ripon, 1881
  • Swadeshi began: Bengal, 1905
COMMON TRAPS
  • 1813 ended the India trade monopoly; 1833 ended the tea and China monopolies.
  • Plassey (1757) made the Company powerful; Buxar (1764) brought the Diwani (1765).
  • Deindustrialisation means losing old industry, not failing to start new industry.
  • Champaran (1917) was about indigo; Kheda (1918) was about land revenue.
  • The first train ran Bombay–Thane, not Calcutta, under Dalhousie.
  • First Factory Act: Ripon (1881), not Curzon.
  • Swadeshi and boycott began against the partition of Bengal (1905), not in Non-Cooperation.
  • Gandhi's 11 points did not include cow slaughter or khadi.
QUICK BYTES
  • Plassey: 23 June 1757, Clive vs Siraj-ud-Daulah
  • Buxar: 1764, English vs Mir Qasim's alliance
  • Diwani of Bengal: 1765, Treaty of Allahabad
  • Charter Act 1813: India trade opened
  • Charter Act 1833: Company stops trading
  • Laissez-faire: Adam Smith
  • Deindustrialisation: ruin of handloom weaving
  • Indigo Revolt: Bengal, 1859–60
  • Nil Darpan: Dinabandhu Mitra
  • Champaran: 1917, tinkathia system
  • First train: 16 April 1853, Bombay–Thane, 34 km
  • Post Office Act: 1854, Dalhousie
  • First Famine Commission: Strachey, 1880
  • First cotton mill: Bombay, 1854
  • First Factory Act: 1881, Ripon
  • TISCO: 1907, Jamshedpur
  • FICCI: 1927, Birla and Thakurdas
  • Drain theory: Dadabhai Naoroji
  • Swadeshi: 1905, Bengal
CHECK YOURSELF

What is deindustrialisation, and why did it happen in India?

Show answer

It is the loss of a country's existing industry. After the Charter Act of 1813, cheap British machine cloth entered India at very low duty while Indian cloth faced heavy duties in Britain. Handloom weavers lost their markets and fell back on farming.

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