How Colonialism Continues To Shape India’s Economy?

Queen Elizabeth II’s death has renewed the discussions on the crimes of colonialism. British Empire has affected its colonies in a way that they are still not able to recover.

This article deals with India’s political economy. It is an important and a relevant topic today, not because of the Queen’s death, but of the contemporary debates on India’s economy.

Ever since Modi came into power in 2014, he has brought some policies focusing on undoing the wrongs done by the British policies. Two particular programs in the economy that are related to the debate here are- Atmanirbhar Bharat Abhiyaan (Self-reliant India) and Make in India. Further, the NITI Aayog or National Institution for Transforming India replaced the Planning Commission in 2014.

Modi’s policies are not directly related to British policies. However, they are related to the system adopted by India after the experience of British rule.

India’s Lesson from Colonialism?

The debates and discussions on India’s economy during India’s independent struggle later shaped India’s economy. They continue to do so.

Just a few years after the creation of the Indian National Congress, “economic nationalism” emerged in India. The debates and discussions about economic nationalism started with a critique of colonial economic policies. Economic nationalists offered several solutions to the problems that plagued the Indian colonial economy at that time. Initially, there were arguments for some sort of state support for India’s industry. This was followed by calls for protective tariffs. Finally, close to independence, the nationalists adopted centralization of national planning.

Drain and Deindustrialization

The two main concepts that economic nationalists relied on were drain and deindustrialization.

By drain, they meant that British exported raw material like cotton from India while India imported finished products like textiles from the British. This led to a drain of wealth because the value, services and employment that was added to the finished products in British could be done in India if India had industries. The added value, services, and employment, all benefited Britishers.

The import of finished products also led to deindustrialization as handicrafts declined. People involved in handicrafts lost their livelihood as the British imported cheap machine-made textiles.

After independence, India’s rulers took lessons from drain and deindustrialization. They argued that since colonial India was an open economy, it did not benefit Indians. So, they closed the economy of India. Also, since colonial India had a small state, India after independence focused on making a penetrative state.

Looking at Britain, India, like other decolonized countries wanted to industrialize. Perhaps, they wanted to become like their colonizers. Their argument was that Britishers were able to colonize because they had power. India also wanted to become powerful.

At the same time, USSR’s economic policies inspired India. A backward country where main economic activity was agriculture had industrialized within some years. India had similar conditions. Hence, the government adopted centralized national planning.

Britishers had neglected the agriculture sector. The Indian government led by Nehru also neglected the agriculture sector. Nehru’s government focused on the industry.

What was produced, how it was produced and for whom it was produced- the government decided it all.

Finally, India began opening its economy in early 1991.

Critique of Economic Nationalism

Detractors of economic nationalism argue that India learnt wrong lessons from British colonial rule.

They argue that the British Empire’s policies of an open economy and a small state created conditions for economic development in India. According to them, despite conditions prevailing in India going against industrialization, the access to the global market made possible through colonialism promoted industrialization in port cities in India. Further, they allege that Indian nationalists used “economic nationalism” to justify their fight against the empire. For them, even though it served the nationalists’ politics, it has done a disservice to the economic history of India.

They also rationalize the concepts of “drain” and “deindustrialization”. Their argument is that it was the cost that India paid for the services and skills that it imported from Britain.

They suggest that it is not entirely true that India did not have a manufacturing sector during British rule. For them, economic development was most visible in port cities of India where industries had come up. However, they accept that due to non-interference and the small size of British colonial state, agriculture was affected in rural India. There was no increase in the production of agriculture during colonial rule.

The detractors highlight the point that economic nationalism hurt India’s economy after the independence because Indian businesses feared they could not compete with foreign businesses and hence the result was a closed economy and protectionism.

Questions for the Critics of Economic Nationalism

The arguments put forward by the critics of economic nationalism raise some vexing questions.

Even if it is true that the drain and the deindustrialization were the balance of payments for the services and the skills that India imported, why was colonialism necessary?

Further, why the costs were of importing such services and skills so harsh? In the case of deindustrialization, why was no employment provided to those who had lost their livelihood?

At some point, even Britain adopted protectionism to protect their industry from competition. Is it possible to promote industrialization without protectionism?

Also, it is not true that colonial India had an open economy. East India Company maintained a monopoly over trade in India. Further, why did the British think it was necessary for India to have an open economy? It is no secret that it only served the British’s interest because there were no competitors except the British.

It is also interesting that if India paid for the services and skills of modernization in the form of colonization, how did other countries that were never colonized paid for these services and skills?