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Policies of British Rulers that led to Exploitation of Indian Economy

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  • Last Updated : 27 Sep, 2022
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The economic policies introduced by the British rulers in India resulted in the rapid transformation of the Indian economy into a colonial economy, the nature and structure of which were determined by the needs of the British economy. The East India Company came to India in the early 17th Century as traders, but gradually increased their political and industrial hold in phases and culminated in ruling the country for almost two centuries. 

The policies adopted by the British rulers that exploited the Indian economy can be divided into three phases, namely,

  1. Commercial Capitalism Phase (1600-1800),
  2. Industrial Capitalism Phase (1800-1860), and
  3. Finance Capitalism Phase (1860-1947)

The British East India Company strengthened its foothold in India during the Commercial Capitalism Phase. They entirely monopolized the trade and exported the finished goods from India to England and Europe at a comparatively low rate, which led to a drain of India’s wealth. During this phase, the company’s primary function was to buy spices, cotton, and silk from India and sell them at huge profits to Britain.

Under the Industrial Capitalism Phase, the East India Company introduced the “machine era” into the Indian markets. This introduction of machines into the market resulted in a loss of work for both the weavers and artisans as the machine-made products were manufactured in less time and were much cheaper in comparison to the hand-made goods. 

In the Finance Capitalism Phase, India witnessed an expansion of British investments through the construction of railways, telegraph services, banking, post, etc., was developed. Also, the management agency system was adopted to ensure control over the Indian capital.

Economic Policies of the East India Company

Some of the Policies of British Rulers that led to the exploitation of the Indian Economy are as follows:

1. Ignorance of the British Government

The irrigation facilities and technologies used by farmers in the agricultural sector were outdated and needed to be upgraded. The British rulers neglected the upgradation of technology and irrigation facilities which led to the exploitation of the Indian economy.

2. Forced Commercialisation of Agriculture

In agriculture, the shift of cultivation from the purpose of self-consumption to cultivation for the market is called Commercialisation. Farmers were forced to shift from growing conventional crops (rice, wheat) to growing commercial crops (Indigo) so that raw materials could be supplied to Britain. The farmers were also getting exposed to the uncertainties of the market as they were forced to accept the advance payments for cultivating Indigo.

3. Deindustrialisation Policy

The reduction in the country’s industrial capacity is termed Deindustrialisation. The traditional industries of India faced competition from machine-made products as they were manufactured in less time and were cheaper as compared to hand-made products. This also led to a decline in India’s infant industries as there was no protection provided to them.

5. Trade and Import/Export Restrictions

Heavy duties were imposed on the import of Indian cotton textiles, which ranged between 40% – 60%. Indian traders faced discrimination as a trade policy was introduced under which English traders got the help of the government while the Indian traders had to face various restrictions. Trade restrictions were also imposed on the use of Indian ships for transporting goods between India and England. 

6. Lack of Financial Institutions

Since the main motive of the British government was to exploit India, the usage of any financial and banking institutions was not promoted in India. Due to this, the Indian economy faced a major drawback and had a rapid decline.

7. The Drain of Wealth

Before the invasion of the East India Company, India was a well-known exporter of finished goods such as silk, textiles, ivory work, wooden goods, etc. But after the invasion, the British converted India into an importer of finished goods and an exporter of raw materials. Along with this, the British government made the purchase of goods for government stores and railways from British industries and not the Indian industries, which resulted in the fleeing away of the country’s income to England.

8. Foreign Capital Investment

Foreign Capital Investment during colonial rule in India gave birth to a twisted pattern of economic growth as before investing, the British government considered only those industries which would serve the interest of Britishers rather than that of the Indian economy. This led to the exploitation of both natural and human resources in India.

9. Erosion of the Capital Assets from India

There was an increasing demand for materials during the time of the world war, and to meet this demand, the Indian industries had to work beyond their capacity. This ever-increasing demand for goods created a problem of wear and tear in India, which further led to the problem of erosion of capital assets in the economy.

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