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India’s Economy During the British Rule (1)


Formation of the East India Company and Its Background – Contests with the Dutch

“The arrival of Vasco da Gama’s Portuguese fleet off Calicut (Kozikhode) in May 1498 marked a violent break with longstanding tradition of free trade in the Indian Ocean. When asked by an Arab trader why he had come, da Gama responded with precision, ‘we seek Christians and spices’. He found both, but focused his attention on filling his ships with pepper for the voyage home. Not content with being one trading nation among many, da Gama and his successors used their naval supremacy to impose a commercial monopoly in the Indian Ocean. Only merchants who bought Portuguese permits were allowed to do business on pain of confiscation and death, a measure justified on the grounds that the right to free trade was limited to Christians. In a brutal extension of the wars of religion that raged between Christianity and Islam in the Mediterranean, the Portuguese enforced their monopoly with a savagery hitherto unknown in the region.

On his second voyage in 1502, da Gama dispensed with any attempt at negotiation. A large merchant ship bringing back 700 pilgrims from Mecca was taken, primed with gunpowder and sunk. He then moved on to Calicut, capturing 20 trading vessels and butchering their crews. More than 800 prisoners had their hands, ears and noses hacked off, the pieces piled into a boat and sent to the local ruler, the Zamorin, with a note telling him to make a ‘curry’ with what he found. In light of these and other incidents, the economic historian Niels Steengaard has concluded that ‘the principal export of pre-industrial Europe to the rest of the world was violence’.

The Portuguese impact on the economies of the Indian Ocean should not be overstated. What is clear, however, is that for decades thereafter, Portugal’s Estado do India would dominate European imports of pepper, accounting for as much as 75 per cent until the 1580s. This was a state-managed affair, run from Portugal’s Asian capital at Goa and a suite of bases across the Indian Ocean from Mozambique via Malacca to Macau. Portuguese dominance would, however, be ruined by religion – from within by the horrors of the Inquisition and from without by the insurgent Protestant Dutch. When he died in 1525, Vasco da Gama was buried in St Francis Church in Fort Cochin. Today, his grave is empty, but his memory lives on with a mural in the lobby of the Indian Government’s Spice Board in Cochin, a peculiar choice for someone once described as ‘a fiend in human form’.

For a brief moment in the sixteenth century, the kingdoms of Spain and Portugal were united, bringing together their immense overseas territories in the New World, along with dominion over the Netherlands in north-west Europe. But Protestant revolt in the Netherlands led to the blockade of Antwerp, and the closure of Lisbon and Seville to Dutch traders, cutting off their spice supply. The Dutch response was rapid, and the successful return of Dutch ships laden with pepper in 1599 sent shockwaves through London’s markets. The price of pepper almost tripled, rising from three to eight shillings a pound, prompting a band of London merchants to petition Queen Elizabeth for exclusive trading rights. In many ways, the new company (The East India Company) was seen a spin-off of the well-established Levant Company, which saw its business threatened by the Dutch coup. ‘This trading to the Indies’, warned William Aldrich, ‘have clean overthrown our dealings to Aleppo (A place in Syria).’ Over £30,000 was raised to back the venture, which had a strikingly simple mission – ‘let us be sole masters of the pepper trade’, declared the merchants. After much haggling the ailing queen eventually relented, awarding a charter on the last day of 1600, with the objective of bringing back valuable commodities from the East Indies, which should be ‘bought, bartered, procured, exchanged, or otherwise obtained’. Alongside the pursuit of mercantile profit, Elizabeth’s charter (East India Company charter) inserted the public policy goal of the ‘advancement of trade’. In the end, the 218 investors who came together under this banner raised a total of £68,373 to finance a fleet of four small ships, which set sail in February 1601 to find an English niche in this lucrative business.

What lives on from these times are tales of piracy and high adventure. Pirates have an ambiguous place in English folklore, part feared and part celebrated, and the first wave of East India traders simply continued an old English tradition: trade where necessary and plunder where possible. Though sometimes favoured by local people in the East Indies in their battles against the Dutch, the Company’s motive was always the same: to secure exclusive control of local spice production. But the English Company progressively lost the ‘spice race’, outgunned and outclassed by the Dutch. Driven from the Moluccas following the massacre of English traders at Ambon (Amboina) in 1623, the Company gave up the prized nutmeg island of Run as part of wider negotiations following the second Anglo-Dutch war in 1667. In return, New Amsterdam in the Americas was transferred to British rule, and quickly renamed New York. The English Company would cling on to its residual bases in the Spice Islands, but was finally expelled from Bantam by the Dutch in 1682.”1

The East India Company’s Entry into India and Its Struggle with the French

“Forced from the Spice Islands, the Company refocused its gaze on India. The Company’s ships had initially visited the Gujarat and Coromandel coasts of India in search of cotton textiles, which could then be bartered for spices in the Indies. A first embassy led by William Hawkins arrived at the Mughal port of Surat in 1608. His pleas for trade relations failed to interest Mughal Emperor Jahangir, who was still heavily influenced by the Portuguese. Persistence and military muscle paid off, however, and a naval victory over the Portuguese in 1612 resulted in the Company’s first Mughal permit (firman) to trade from Surat, and thereafter at Ahmedabad and Agra. On the opposite coast, trading started at Masulipatam, the principal port of Golconda, in 1614. These early forays were capped in 1618, when England’s ambassador Sir Thomas Roe finally won an extensive trade treaty from Jahangir. Hoping to distinguish the English from the Portuguese and Dutch strategy of conquest and fortification, Roe counselled the Company to avoid military entanglements. ‘If you will profit,’ he urged, ‘seek it at sea and in quiet trade.’ By 1625, 220,000 pieces of cloth were being exported by the Company from Surat.”2

“Maintaining a presence in Mughal India was a constant struggle. But, like the Dutch, the English Company succeeded largely by carving out a comfortable niche from the existing Portuguese empire, capturing its base at Hormuz on the Persian Gulf, for example, in 1622 and raiding Bombay in 1626. Permanent peace was signed with Portugal at Goa in 1635, giving the Company access to the Estado’s ring of ports stretching all the way to Macao. It also paved the way for the establishment of the new base at Fort St George at Madras on the Coromandel coast in 1639. Bombay would follow in 1668, a wedding gift to Charles II from his Portuguese wife, Catherine of Braganza. The cash-strapped king promptly leased Bombay to the Company in return for a sizeable loan and an annual rent.”3

“The wars of Frederick the Great (Frederick II was King of Prussia from 1740 until 1786) found the English and the French opposed to each other in the battlefields of Europe, Asia, and America, for well nigh twenty years, from 1744 to 1763. The servants of the English and the French Companies eagerly took up the contest in India, made alliances with Indian princes, besieged each other’s commercial settlements, and evinced in the East those bitter jealousies which divided them in the West. The three wars between the English and the French, which were carried on in India within these twenty years, are known as the Karnatic wars (1746-1763). (The Karnatic region comprises the modern Indian states of Tamil Nadu, south eastern Karnataka, north eastern Kerala and southern Andhra Pradesh.)

In the first Karnatic war (1746-1748) the French had decidedly the advantage. They took Madras from the English, and they beat back the army of the Nawab of the Karnatic which came to retake the town. Madras was, however, restored to the British by the Peace of Aix-la-Chapelle in 1748.
Dupleix, the Director-General of the French Company, was, however, fired by a lofty ambition to make his countrymen supreme in India; and for a time his success was complete. He helped an Indian ally to become Nizam of the Deccan, and he enabled another ally to become Nawab of the Karnatic. He was thus the most powerful ‘king-maker’ in Southern India, and the influence of the British seemed completely annihilated. The genius of Robert Clive now turned the scales. He first distinguished himself by recovering and holding Arcot, the capital of the Karnatic, from a rival Nawab, an ally of the British. The second Karnatic war (1749-1754) was at last concluded; the ally of the British remained Nawab of the Karnatic, and the ally of the French remained Nizam of the Deccan. There was thus a balance of power between the two European nations in Southern India, and the French obtained the whole of the eastern seaboard, called the Northern Circars, from the Nizam.

The third Karnatic war (1756-63) ended in the complete destruction of the French power. Lally, the patriotic but impulsive leader of the French, besieged the fort of Madras, but failed to take it. He was then beaten by Eyi-e Coote in the battle of Wandewash in 1761, and the French settlement of Pondicherry was taken by the British after an obstinate defence. Pondicherry was restored by the Peace of Paris in 1763, but the power of the French in India had been irrevocably extinguished. After 1763, the British had no European rivals in India.”4

The Battle of Plassey and the Occupation and Plunder of Bengal

“Great events had in the meantime taken place in Bengal. Suraj-ud-Dawla, Nawab of Bengal, had taken Calcutta in 1756 from the English, and most of the English prisoners died in one hot summer night in a small and ill-ventilated prison-room, known as the Black Hole. Clive, on his return from Europe, recovered Calcutta in the following year; made peace with the Nawab; and then entered into a secret conspiracy against him. When everything was ready, he marched against the Nawab; defeated him in the battle of Plassy in 1757; and thus virtually conquered Bengal and thus made the East India Company a great territorial power in India before he sailed for Europe in 1760.

The Nawabs of Bengal had now become mere puppets in the hands of the Company’s servants. Mir Jafar was set up as Nawab after the battle of Plassy, and was deposed in 1760, when Mir Kasim was made Nawab. This last was a strong ruler, and tried to check the abuses of the Company’s servants in the inland trade of Bengal. A war followed; Mir Kasim was beaten and fled; and Mir Jafar was once more made Nawab. The feeble old man died shortly after, and his illegitimate son was then hastily set up as the nominal ruler of Bengal. The administration of Bengal was in the utmost disorder; the people were grievously oppressed.”5

“More of a commercial transaction than a real battle, Plassey was followed by the systematic looting of Bengal’s treasury. In a powerful symbol of the transfer of wealth that had begun, the Company loaded the treasury’s gold and silver onto a fleet of over a hundred boats and sent them downriver to Calcutta. In one stroke, Clive had netted £2.5 million for the Company and £234,000 for himself. Today this would be equivalent to a £232 million corporate windfall and a cool £22 million success fee for Clive. Historical convention views Plassey as the first step in the creation of the British Empire in India. It is perhaps better understood as the East India Company’s most successful business deal.”6

“For the first half of the eighteenth century, the Company’s attention was focused on the prize that was Bengal. The Indian subcontinent was then the workshop of the world, accounting for almost a quarter of global manufacturing output in 1750, compared with just 1.9 per cent for Britain. Within the Mughal Empire, Bengal was the richest province (suba), described by Aurangzeb as ‘the Paradise of Nations’. Proximity to good raw materials, a highly productive agricultural sector along with a sophisticated division of labor in cloth production gave Bengal an unbeatable combination of high quality and low prices. Such was the cost advantage that in the late eighteenth century Indian cottons could be sold at a profit in Britain, at prices 50 to 60 per cent lower than those fabricated domestically. Deeply embedded in the traditional village system, hand-woven cotton linked agriculture with industry, creating a diversity of income and providing goods that could be traded both locally and internationally. For millennia, Indian cotton cloths out-competed the rest of the world. Even in the first century A.D., the Roman historian Pliny was complaining that the extensive importing of cotton fabrics from India was draining Rome of gold. Similar complaints came from English weavers when Indian cottons once again began to enter Europe in bulk in the late seventeenth century.

Bengal’s production was also distinguished by immense diversity, with over 150 different names for the textiles bought by the Company, covering muslins, calicoes and silk, along with mixed cotton and silk goods. Different production centers would specialize in particular styles; for example, Dhaka was renowned for the transparency, beauty and delicacy of its muslins. So fine was the fabric that a pound of cotton could provide upwards of 250 miles of muslin thread. Quality and style varied from the finest mull-mulls and allaballee through to shabnam (morning dew) and nayansukh (pleasing to the eye). Essential for the feel of the muslin was the short-staple phuti cotton grown on the banks of the river Meghna, near Dhaka, described by the British Resident as ‘the finest cotton in the world’. One estimate from 1776 suggests that as many as 25,000 weavers were based in Dhaka producing some 180,000 pieces of cloth from thread spun by 80,000 women. Along with its textiles, Indian names for cloth also entered the English language, not least bandana, calico and chintz, dungaree, gingham, seersucker and taffeta.

For the Company, the textile craze in Europe created immense wealth for its traders and shareholders. Although it had started trading textiles from the Gujarat and Coromandel coasts, Bengal steadily grew in importance. From just 12 per cent in 1668-70, Bengal’s share of total Company imports climbed to 42 per cent in 1689-90, making it the largest single source of supply; by 1738-40, the proportion had climbed to 66 per cent. But the Company was only one trader among many, and the trade of all the European companies put together probably represented only one-third of the Bengal’s total exports, the bulk still being conducted by Asian merchants. Not surprisingly, this immense source of demand created a powerful upward pressure on prices.

Access to this market was also tightly controlled, regulated by a Mughal trade policy that carefully delineated what could be traded and by whom on the basis of both economic functionality and social significance. The Mughals made clear distinctions between inland and international trade, with foreign companies being awarded the privilege of export in exchange for inflows of silver to enrich the treasury and lubricate the economy. Within Bengal’s internal market, a range of prestige items, such as salt, betel and tobacco, were traded on the basis of social rather than market norms. ‘European trading groups, people from the ‘hat-wearing nations’ (kulahposhan) were admitted into these transactions of privilege and power as long as they did not disrupt the material hierarchy of exchange.’ This combination of strong demand and tight regulations meant that the terms of trade for the European traders drawn to Bengal were tough. Only bullion would do, and between 1708 and 1756 three-quarters of the Company’s imports into Bengal were in the form of silver.”7

“It was the wealth of Bengal’s textile industry that had first lured the Company to Bengal, and it would be Bengal’s weavers who felt the full force of the Company’s new-found market power. Never rich, Bengal’s weavers still had a better standard of living than their counterparts in contemporary England, largely owing to their ability to determine their terms and conditions. According to Prasannan Parthasarathi, there is compelling evidence that India’s weavers had ‘higher earnings than their British counterparts and lived lives of greater financial security’. Economic tradition in India supported the position of the weaver against the merchant. At a time when the British state was intervening on the side of the employer – for example, to set maximum levels for wages – Indian weavers were able to act as a collective body, improving their ability to negotiate favourable prices. This bargaining power combined with strong European demand for cloth in the first half of the eighteenth century created a seller’s market, enabling Indian weavers to enjoy a ‘golden age’ of low costs and high prices.

All this ended following Plassey. From a situation of relative economic independence, Bengal’s weavers were forced into a position of near slavery, unable to sell to others and obliged to accept whatever the Company’s agents (gomastas) would offer for their cloth. ‘The Company went to market as Sovereigns and Tyrants’, argued a revealing briefing written for Philip Francis in the 1770s. ‘Instead of seeking a preference by paying better,’ it added, ‘they forced the manufacturers to Work for them and to work at an under price, at the same time that they prohibited all private merchants from dealing in the Assortments required for their Investment.’ The outcome was inevitable: ‘thus a general Monopoly was at once rigorously established’.

The Company employed all kinds of subterfuge to squeeze prices ever lower. One practice that was particularly resented was the classification of perfectly good quality cloth as sub-standard (ferreted). These pieces would then be sold on to the open market at price substantially higher than that given to the weaver, in the process making a tidy profit for the Company’s gomasta and Resident.

As prices fell, weavers became unable to cover the costs of production, leaving themselves increasingly unable to earn enough to pay back the advances they had received from the Company. Further poverty and indebtedness followed. For Bangladeshi scholar Hameeda Hossain, it was ‘the corporate buyer, who had provided the weaver with his working capital and access to the market [that]became the root cause of his pauperization and alienation from his occupation’.

Some weavers resisted this abuse of power. For example, in 1767, a group from Khirpal sent a delegation to Calcutta with a petition requesting an increase in the purchase price of cloth. Remarkably, the Company authorities agreed. But the local Company Resident not only ignored the order, but threatened to have the troublesome weavers arrested if they pursued their case. Yet, this was a rare example of resistance, and by the early 1770s, the Company was earning impressive returns from its policy of oppressive exchange. One estimate suggests that the Company’s gomastas were able to pay ‘in all places at least 15 per cent and in some even 40 per cent less’ than the weaver would receive in the public bazaar.

These price cuts were achieved at the cost of a brutality that became infamous at the time. According to William Bolts’s celebrated account, ‘various and innumerable’ were ‘the methods of oppressing the poor weavers, such as by fines, imprisonments, floggings, forcing bonds on them etc’. For some of the weavers, the reaction to this abuse was simply one of despair. Among the winders of raw silk, called nagaads, Bolts reported that the Company’s practices led to a shocking form of self-mutilation, stating that ‘instances have been known of their cutting off their thumbs to prevent their being forced to wind silk’.

It is difficult to imagine the scale of economic violence required to force skilled workers to harm themselves in this way. Apart from Bolts, however, no other evidence exists for this or similar incidents. This has not stopped it achieving apocryphal status as a symbol of the physical and psychological pain inflicted by the Company’s takeover of Bengal. Indeed, the image remains alive in popular memory across the subcontinent, as poet Shahid Ali expressed in his 1980s poem, ‘Dacca Gauzes’:

In history, we learned: the hands
of weavers were amputated,
the looms of Bengal silenced,
and the cotton shipped raw
by the British to England.
History of little use to her,
my grandmother just says
how the muslins of today
seem so coarse and that only
in autumn, should one wake up
at dawn to pray, can one feel that same texture again.”8

“Almost immediately after the Plassey coup, the techniques that Clive had deployed were subject to substantial scrutiny, and have been the focus of controversy ever since. Many criticized Clive for stooping to so-called ‘Oriental’ practices of corruption and deceit. Surveying Clive’s career many years later, Thomas Babington Macaulay concluded that he had become an ‘Indian intriguer’, and his trickery of Amir Chand was ‘not merely a crime, but a blunder’. Clive’s most recent English biographer, Robert Harvey, takes a more Machiavellian approach and argues that Clive ‘deserves enormous credit for his skill in deceit’. There can be little real sympathy for Amir Chand, outwitted by someone more underhand than himself. But Clive’s great deception forms part of the original lie that underpinned British rule in India. The ‘black hole’ incident would later be blown up as a crime that justified the Company’s fullest retribution. But the Company would remain wide open to the charge of hypocrisy when it later extolled its ‘plain dealing’ (in Clive’s own words) as providing the foundations for its rule.

More serious are the charges of corruption leveled at Clive. Along with other leaders of the expeditionary force, Clive profited enormously from the Plassey Revolution, gaining Rs. 200,000 as a member of the Bengal Select Committee, a further Rs. 200,000 as commander-in-chief, and another Rs. 1,600,000 in the form of private donations from the Bengal nobility, in all amounting to £234,000 – some £22 million in 2002 values. Aged 33, Clive had suddenly become one of the richest men in England. Defending himself in Parliament many years later, Clive declared himself innocent of all charges: ‘Mr Chairman, at this moment, I stand astounded at my own moderation.’ Unseemly as these payments may well have been, Clive was breaking no law in accepting them. He was merely setting ‘an evil example’ to others, according to Macaulay.

What Clive had started, others would copy. In the eight years that followed Plassey, the Company placed four nawabs on the throne of Bengal. Each ‘revolution’ was accompanied by the transfer of more and to the Company to reschedule the Nawab’s now-hefty debts, along with lavish presents for leading Company executives, totaling £2.2 million, along with another £3.8 million in reparations. In 1760, Mir Jafar was toppled by the Company in favour of his son-in-law Mir Kasim, who in turn was overthrown in 1763 when he tried to stop the cancer of the Company’s private trade. Mir Kasim’s solution was bold – abolishing all internal customs duties, thereby negating the value of the Company’s duty-free dastaks. This reform could not be allowed to stand, and so the Company went to war once more.

Such was the hatred of the Company that a group of English prisoners held in Patna were murdered by Mir Kasim’s troops in 1763, a deliberate act of vengeance far more brutal than the ‘black hole’ incident six years earlier. The once pre-eminent Jagath Seths were also beheaded for their complicity with the British. In addition, armed bands of holy men (sannyasi) contributed to the turmoil, with one group raiding Dhaka and looting the Company’s factory at Baiganbari. Mir Kasim joined forces with the Nawab of Awadh and the Mughal Emperor Shah Alam II to challenge the Company for control of Bengal. In this second ‘Company-Mughal War’, the original outcome was reversed. At the battle of Buxar in October 1764, the Company’s forces triumphed in a victory that was perhaps more decisive even than Plassey. Mir Jafar was returned to the throne for a pitiful last few months before his son Najim-ud-Daula took over in early 1765.”9

“After Buxar, all of Bengal was at the Company’s mercy. Its competitors had been dealt with, and the Nawab was no longer any threat. But there was still one final acquisition that would complete the revolution: the absorption of Bengal’s treasury into the Company’s accounts. The transfer of 24 parganas following Plassey had added £58,000 in taxes to the Company’s revenues. Soon Clive was being approached by the Mughal Emperor, requesting that the Company assume the office of tax management (diwani) in order that Bengal’s regular tribute to Delhi could be resumed. Writing to the Prime Minister, William Pitt, in January 1759, Clive explained that he had declined ‘for the present’. Clive then sailed home with a £300,000 fortune – worth over £34 million today – and a lifetime award (jagir) from Mir Jafar worth some £30,000.

The installation of Mir Kasim in 1760 brought the districts of Midnapore, Burdwan and Chittagong under Company control, yielding another £650,000. When Clive returned to India for the third and final time in May 1765, he threw off his initial caution and forced the enfeebled Shah Alam II to formalise the Company’s control. On 12 August 1765, the Emperor granted the Company the diwani rights for Bengal, Bihar and Orissa, in return for an annual tribute of Rs 2.6 million, equivalent to £325,000. When all the costs of the Nawab’s administration had been deducted, Clive calculated that from Bengal’s annual tax revenues of Rs 25 million, there would still be ‘a clear gain to the Company’ of Rs 12 million or £1,650,900. In twenty-first-century terms, this amounted to an annual surplus of over £150 million, a profit margin of some 49 per cent.

For the cost-conscious directors back in Leadenhall Street, who had obsessively managed the export of scarce bullion to the Asia for over 150 years, Clive painted a wondrous picture of bounty. The acquisition of diwani rights would now ‘defray all the expenses of the investment, furnish the whole of the China treasure, answer the demands of all your other settlements in India, and leave a comfortable balance in your treasury besides’. Clive cleverly maintained the fiction of Mughal authority by ensuring that taxes continued to be collected by local officials, ‘a perfect example of income without investment’, according to Professor Sirajul Islam of Bangladesh’s Asiatic Society. In the next six years, the Company would collect over £20 million, generating a surplus of £4 million, less than initially expected. But this was still a substantial haul at a time when the Company’s total exports from Asia before the diwani amounted to just £1 million each year.”10

“While the London establishment were contemplating the costs of its financial excesses in the summer of 1769, across the world in Bengal a drought of unprecedented ferocity was just commencing. For six whole months from August 1769 to January 1770, the monsoon rains failed to arrive, delivering a chronic water shortage that destroyed up to half the crops, particularly in the west and north-west of Bengal. With the New Year, drought started to turn into famine. Plentiful rain fell in June 1770, but ‘hopes of relief were disappointed by the overflowing of the rivers in the eastern provinces’, adding flood to famine.”11
To be continued…

1. Nick Robins, The Corporation that Changed the World, pp. 41-44, Orient Longman Private Limited, Hyderabad, 2006
2. Ibid., p. 44
3. Ibid., p. 45
4. Romesh Chandra Dutt, The Economic History of India – I, p. 2, Director, Publications Division, New Delhi, 2006
5. Ibid., pp. 2-3
6. Nick Robins, The Corporation that Changed the World, p. 3, Orient Longman Private Limited, Hyderabad, 2006
7. Ibid., pp. 61-63
8. Ibid., pp. 76-78
9. Ibid., pp. 72-74
10. Ibid., pp. 75-76
11. Ibid., p. 90

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