Fw: Indian Economy in Colonial Period

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Date: Wed, 17 Apr 2002 19:35:52 +0530
From: "Ulhas Joglekar" <uvj@vsnl.com>
Subject: Indian Economy in Colonial  Period

EPW

Book Review

15 December, 2001

Indian Economy in Colonial Period

Marcia J Frost

The Economic History of India, 1857- 1947 by Tirthankar Roy; Oxford
University Press, New Delhi, 2000; pp  xviii + 318, Rs 395.

Throughout much of the past century,  the story of Indian economic history  in
the modern period has too often been  captured by those with an  ideological
agenda. On the one hand it has been  captured by those who wish to defend  the
British Empire, and on the other by  those who wish to blame all India's
economic failures on her colonial  past. From the mid-1960s The Indian
Economic and Social History Review  followed by The Cambridge Economic
History of India (Cambridge  University Press, 1982 and 1983)  served as
forums for new research by those who  were willing to leave behind these
dead-end agendas and to examine the  past with new tools, new data and  new
models. Tirthankar Roy's The Economic  History of India, 1857-1947 is an
excellent product of the new Indian  economic history, and a worthy  successor
to the now classic CEHI edited by  Dharma Kumar, Irfan Habib and Tapan
Raychaudhuri as a compilation of  recent research.
Intended as a text for undergraduate  and graduate students in economic
degree programmes at Indian  universities, Roy's Economic History  of India
warrants a much wider audience. It is  well written with none of the  jarring
misuse of vocabulary and awkward  phrasing found in some texts, and it  is
more accessible to the non-specialist  than the current topical volumes of
The New Cambridge Economic History of  India. As any text author does, Roy
summarises the important literature  and debates on the economy of India
during the nine decades of Crown  Rule, re-exploring the important  issues of
the past - why did India's economy  grow so slowly? what roles did  colonial
rule and Indian conditions play in  that slow growth? - and exploring  those
which have emerged in recent years.  But Roy is more than a textbook  author.
Professor at the Indira Gandhi  Institute of Development Research  (Mumbai),
Roy is one of the leading  practitioners of the new economic  history of
India, and this book is a first class  work of new economic history in  which
he carefully lays out alternative  hypotheses, historical evidence,
defensible conclusions, and still to  be answered questions. Economic  models
are clearly identified, and  motivations, risks and information  asymmetries
are explicitly included in the  analysis. And throughout this book  the
emphasis is on understanding the  evolution of the economy over time,  the
inter-relationships between sectors,  and the constraints within which
economic decisions were made. The  variation of experiences across  regions
and political sovereignty is  emphasised throughout. Overall  economic growth
may have been slow, halting and  sometimes reversed, but regional,  provincial
and princely state experiences varied  greatly.
One of Roy's enduring interests is  with markets - land, labour, credit  and
product - and the story he tells is  one of markets that pre-date the
colonial conquests, expanded in many  dimensions throughout much of the
colonial period, and made possible  whatever economic growth that  occurred.
Like the economic growth it fostered,  the process of commercialisation was
strong in some regions, and weak or  absent in others. By and large Roy
describes market participants who  were entrepreneurial and a source of
dynamism, not dispossessed and  coerced. Expanding markets were  important
domestically for the evolution of  small-scale industries, whose  employment
of family and hired labour was  significantly more important as a  means of
livelihood than that of large-scale  industries. As demand for their
products - textiles, food-drink- tobacco, wood and ceramics - grew and
shifted to meet new consumer  preferences, small-scale industries  evolved new
organisational forms, technology and  products, and productivity improved,
albeit slowly. As the sector grew and  organisational structures changed,  new
markets for non-family, non- apprenticed labour arose, providing  expanded
employment opportunities for those  whose labour was underutilised  elsewhere
in the economy.
As domestic markets expanded, so too  did India's engagement in foreign
markets. Exports rose dramatically at  annual rates of 4 to 5 per cent
between 1835 and 1913, increasing the  absolute and relative income earned
from international trade. By the  latter date as much as one-fifth of
national production was destined for  foreign consumption. The spillover
effects of India's expanded  engagement in the 19th century  global economy
were evident in the rise of a modern  textile industry and the evolution  of
modern financing institutions. An  exporter of raw materials, processed
agricultural goods and labour, India  received in return European  (primarily
British) investment funds, technology  and a government whose rent-seeking
proclivities were limited.
The end of state rent-seeking was  important, for as Eric Jones in  Growth
Recurring: Economic Change in World  History (Oxford: Clarendon Press,  1988)
has noted, it has often been these  stifling activities which halted and
reversed economic growth throughout  history. Roy examines the role of
government - first that of the East  India Company, later that of the  Crown -
in India's economy. Although  conservative, unwilling to introduce
revolutionary change that might  threaten its control, and struggling  with
evolving ideas of its proper role  even at home, the successive  governments
of British India created new  institutions and infrastructures  that reduced
the uncertainties, transactions costs  and information asymmetries that
constrain economic decision-making,  exchange and growth. The gradual
introduction of standardised weights,  measures and currency lowered costs
for both producers and consumers.  This directly benefited all but the
shroffs whose intermediary services  were no longer required, but  indirectly
freed literate and entrepreneurial  class to move into new ventures.
By the mid-19th century provincial  and princely state governments  assumed
responsibility for expanding  irrigation and road networks,  facilitated the
development of transport and  communication systems based on  railroads and
telegraphs, and created a system of  codified, uniform (across caste and
class) and enforceable property  rights. Despite its early errors in  setting
its land revenue demand too high and/ or enforcing its collection too
rigorously in some ryotwari areas and  reducing incentives to increase
agricultural productivity in  Permanent Settlement areas during  the first
decades of Company rule, by the mid- 19th century government agrarian
policies encouraged the scientific  investigation of agricultural  practices,
resources and commodities, and  supported the dissemination of  acquired
knowledge through extension services.
The failures of government to be more  proactive, more pro-development
stemmed in part from fear of  generating violent response from  those whose
control of resources and status would  be threatened, and in part from its
own poverty. Government revenues were  limited. Tariff policies set by
parliament precluded customs duties  from providing a significant source  of
revenues as they did elsewhere around  the 19th century world. Transit and
professional taxes were abolished and  land revenue rates were reduced  before
the mid-19th century, but alternative  forms of income-elastic taxes were  not
introduced.
One of Roy's overarching concerns is  to measure and explain the slow pace  of
India's economic growth during the  colonial period. Economists often  find it
useful to examine the growth of an  economy in terms of an aggregate
production function, whereby  increases in output are the result  of increases
in the quantity and quality of  resources - human (labour), natural  (land)
and man-made (capital), and  improvements in the way and the  environment in
which those resources are combined to  produce goods and services (total
factor productivity). Increases in  population resulted in a larger  labour
force. Infrastructure improvements  including the standardisation of  weights,
measures and money during the first  third of the 19th century, transport  and
communication (principally railroads  and telegraphs) during the second
third, and a modern state supporting  a variety of public goods  institutions
(e g, legal, educational, health)  from the last third promoted  increases in
total factor productivity. The  clearing of fallow and forest lands
initially, and subsequently the  extension of cultivation to newly  irrigated
lands increased the quantity of  natural resources, although at the  cost of
loss of common property resources and  redistribution of wealth.
What was absent, however, were the  two factors most responsible for the
intensive economic growth which has  improved per capita incomes and
standards of living in all nations  experiencing modern economic growth.
First, there was little improvement  in the quality of human resources.
Mortality (and one assumes morbidity)  rates remained high and life
expectancies low until after 1921,  thereby reducing the potential gains  from
improving skills through long work  experience. Literacy rates were low,  and
education remained an asset of the  privileged, not the masses.  Education
provides the means to acquire new  skills, ideas and ambitions, all of  which
are necessary to improve the quality  of human resources. Second,  increases
in the stock of physical capital were  exceedingly small - net capital
formation rates were as low as 2 to 4  per cent of national income in the
first half of the 20th century. Such  low rates of investment were barely
sufficient to keep the capital stock  per worker stable and provided no  scope
for the capital deepening which  improves labour productivity, wages  and
living standards.
What we've seen elsewhere around the  world is a long and variable lag
between the initial stirrings of  change from old patterns of  extensive
economic growth and the eventual  rapid pace of change that  exemplifies
intensive modern economic growth. The  antecedents of Britain's rapid
economic growth from the mid-18th  century are found centuries earlier  in the
slow but accelerating pace of  agrarian innovation, urbanisation  and
widespread literacy. The antecedents  of Japan's rapid economic growth  after
the Meiji Restoration are also found  in earlier centuries when
socio-economic roles were redefined,  farmers throughout the archipelago
exchanged new rice varieties,  cultivation techniques and related
technologies through new mediums of  information dissemination, and
entrepreneurial enthusiasm permeated  the culture. And so it was in India.
The antecedents of India's modern  economic growth, so unequivocally  evident
by the last decade of the 20th  century, are rooted in the nine  decades of
institutional, infrastructural, and  cultural change that Roy describes  and
explores in The Economic History of  India, 1857-1947.

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