Economic Impact of British Rule

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Three Stages of British Colonialism

First phase-The Mercantile phase (1757-1813)

» The East India Company used its political power to monopolize trade and dictate terms to traders of Bengal.
» Imposition of inflated prices of goods led to buccaneering capitalism whereby wealth flowed out of barrel of the British trader's gun.
» Revenues of Bengal were used to finance exports to England.

Second phase-The Industrial phase ( 1813 - 1858 )

» India was exploited as a market for British goods.
» Act of 1813 allowed one way trade for the British, as a result the Indian markets flooded with cheap and machine-made imports. Indian traders lost foreign as well as home market.
» Indians were forced to export raw materials and import finished goods.
» Heavy import duty on Indian products to England to discourage them in the market.

Third phase-Financial phase (1860 onwards)

» The British consolidated their position in India and made India a market for manufacturers and a supplier of foodstuffs and raw materials.
» Introduction of Railways (1853), Post and Telegraph (1853), Banking System (Avadh Commercial Bank-1881).
» Heavy British investment in India and burden of public debt increases.
» Industries came into existence (Tata Iron and Steel in 1907).

Drain of Wealth

» Dadabhai Naoroji cited it in his book "Poverty And Un-British Rule in India" (1867). R C Dutta in his ''Economic History of India" (1901) blamed British policies for Indian economic ills.
» Drain of Wealth theory refers to a portion of national product of India which was not available for consumption to its people.

Constituents of drain were :
1. Extortion by company servants the fortunes from rulers, zamindars, merchants and common man and sending them home.
2. Purchasing goods out of revenues of Bengal and exporting them. This was called investment.
3. Duty free trade provided to the British gave them a competitive edge over Indian traders. These subsidies were financed from Indian treasury.
4. Remittances or salaries and other incomes by company officials send to England.
5. Home charges or cost of salaries and pensions of company officials in India were paid from the treasury of India.
6. Hefty interests were paid to British investors.


1. It stunted the growth of Indian enterprise and checked and retarded capital formation in India.
2. It financed capitalist development in Britain.
3. India was kept as a zone of free trade without allowing it to develop the ability to compete.
4. Plantations, mines, jute mills, banking, shipping, export-import concerns promoted a system of interlocking capitalist firms managed by foreigners. It drained resources from India.

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