Let Us All Work For the Greatness Of India

India’s Economy During the British Rule (2)


A. The Bengal Famine of 1770

“… British control of India started with a famine in Bengal in 1770 and ended in a famine – again in Bengal – in 1943. Working in the midst of the terrible 1877 famine that he estimated had cost another 10 million lives, Cornelius Walford calculated that in the 120 years of British rule there had been 34 famines in India, compared with only 17 recorded famines in the entire previous two millennia. One of factors that explained this divergence was the Company’s abandonment of the Mughal system of public regulation and investment. Not only did the Mughals use tax revenues to finance water conservation, thus boosting food production, but when famine struck they imposed ‘embargos on food exports, anti-speculative price regulation, tax relief and distribution of free food’. More brutally, if merchants were found to have short-changed peasants during famines, an equivalent weight in human flesh would be taken from them in exchange.

Like previous failures of the natural cycle, the inadequate monsoon of 1769 in Bengal could have been managed without great loss of life. But the Company had significantly increased Bengal’s vulnerability to natural disaster. Bengal had been picked clean by the Company and its executives in the preceding decade. Revenue collection had increased dramatically from just £606,000 the year before the Company took over the diwani to a peak of £2,500,000 two years later. Flows of bullion into Bengal fell from £345,000 in 1764 to £54,000 in 1765, and ceased entirely in 1766. Instead, silver started leaving Bengal to pay for the Company’s tea trade. By 1769, Richard Becher, the Company’s Resident at Murshidabad, admitted with some shame that ‘the condition of the people of this country has been worse than it was before’, arguing that ‘this fine country, which flourished under the most despotic and arbitrary government, is verging towards its ruin while the English have so great a share in the Administration’.

Throughout 1769, the Company monitored the situation, and in November, the Calcutta Council wrote back to London that revenues would be reduced in the year ahead. A harrowing letter published under the name of J.C. in the Gentleman’s Magazine in September 1771 reveals the unrelenting pursuit of self-interest that governed the Company’s approach to the crisis. Rather than take action to curb price speculation in grain, ‘as soon as the dryness of the season foretold the approaching dearness of rice’, wrote J.C., ‘our Gentlemen in the Company’s service were as early as possible in buying up all they could lay hold of’. The peasants quickly complained to the Nawab that the English had ‘engrossed all the rice’. But when these accusations were put before the Company’s Calcutta Council, the complaint was met with howls of laughter and thrown out. Huge fortunes were made as Company staff cornered the market. One junior executive accumulated over £60,000, as rice prices soared from 120 seers of rice per rupee at the beginning of the famine to just three seers a rupee in June 1770. At the time, a seer was equivalent to about 2 lb in weight. The Nawab and other Bengali nobles tried to respond in the traditional way and distributed rice free of charge. But because of the hoarding by the Company’s executives, their stocks were soon depleted.
As the famine intensified, thousands flocked to Calcutta, many dying in the streets. Whoever he was, J.C. clearly had humanitarian feelings and would hand out food to the starving who gathered near his Calcutta residence. But he was also squeamish. On one occasion, he sent his servants to get the starving to move away from his house. But one of the near-dead rebelled, and cried out: ‘Baba! Baba!, my Father, My Father! This affliction comes from the hands of your countrymen, and I am come here to die, if it pleases God, in your presence.’ J.C. concludes his letter by describing Calcutta’s good fortune of having both vultures and dogs to deal with the dead – the first to take out the eyes and intestines, and the latter to gnaw the feet and the hands.

With no pictures or photographs to drive home the horror of the event, we are left with eye-witness accounts of the living feeding off the dead, of the Hugli full of swollen bodies and, in the words of Karim Ali, author of Muzaffarnamah, of whole families being yielded up to the ‘talons of the wrath of the godless’. However, the Company’s first concern was to feed its army and then to ensure that its taxes were secure. Not only did the Company continue to collect its land revenues throughout the famine – instead of introducing some form of relief in the Mughal fashion – it actually increased the rate. In February 1771, Calcutta reported back to the directors that ‘notwithstanding the great severity of the late famine and the great reduction of people thereby, some increase has been made’ in revenue collection. Many of the Company’s leading executives used their position to purchase grain by force – even seed for the next year’s planting – and then sold this at famine prices in the big cities of Calcutta and Murshidabad. Eventually, the Company did act, providing Rs90,000 in relief, a pittance in a land of some 30 million people with annual revenues of over Rs17 million. Even later imperial historians admitted that the Company did not even ‘attempt to cope with the disaster’. This was a man-made catastrophe.

The absence of comprehensive records means that it is impossible to calculate accurately the numbers of those who died in the famine. In 1772, Warren Hastings estimated that 10 million Bengalis had starved to death, equating to perhaps a third of the population. Hastings also concluded that the famine was caused by an artificial shortage of food supplies caused by market manipulation. For this, Hastings blamed the local merchants, ignoring the role of the Company executives themselves.”1

“Mortality was highest among low-income groups, the rural artisans and urban poor, neither of whom had direct access to food stocks. In Purnea, one of the worst-affected districts, the Company’s agent reported that ‘on the high and sandy soils, more than half the ryots are dead’. Mortality in Malda also approached 50 per cent, while in Rajshahi between a third and a half of the people died, and in Birbhum up to a quarter perished. Re-examining the data, Rajat Datta has recently argued that the accepted estimate of 10 million deaths is inflated, suggesting a death toll of 1.2 million instead. Yet, even if this more conservative figure is taken, the terrible outcome of the famine can still be barely understood. This was a time when the population of London was well under a million.

All of these and more would have been wiped out if the famine had hit the Company’s home town, instead of far-off Bengal. In effect, London would have been left a ghost town. Instead, it was Bengal that was depopulated, with one-third of the Company’s territory lying ‘as jungle inhabited only by wild beasts’. The sheer barbarity of the Company’s conduct during the 1770 famine lies in its refusal to temper its demands for taxes with a sense of responsibility for the people of Bengal. As Warren Hastings acknowledged in a letter to the Company’s directors in November 1772, ‘it was naturally to be expected that the diminution of the revenue should have kept an equal pace with other consequences of so great a calamity’. The reason that revenues were maintained was ‘owing to its being violently kept up to its former standard’.2

“The Bengal Famine stands out as perhaps one of the worst examples of corporate mismanagement in history. Yet, the preconditions for such a disaster had been in place for decades. The onrush of easy money from coups and corruption extinguished the scrupulous concern for trade that had previously characterized the Company’s management. While those in England squabbled over how to divide the spoils, in India all systems of administrative control broke down, allowing abuse to flourish at the expense of both the people of Bengal and the Company itself. William Bolts captured this dual collapse perfectly when he wrote in 1772, ‘while this nation is gazing after the fruit, the Company and their substitutes are suffered to be rooting up the tree’. Remittances home from the Company’s executives stood at just £79,000 in 1756. But following the victory at Plassey, they would average an annual £500,000 in the years to 1784. In 1770-71, in the midst of the Bengal Famine, a staggering £1,086,255 was transferred home by the Company’s executives – equivalent to nearly £100 million in twenty-first-century terms.

Executives in India lost sight of their commercial purpose, and observers in London lamented the declining quality of the textiles that were now sent back from Bengal, which exhibited ‘no assortment, no taste, nothing new either to furnish variety to the old or to engage new markets’. Added to this, embezzlement became widespread. Writing much later, Warren Hastings would complain in 1782 that ‘every article of the investment is provided for the Company at 30 or 40 or even 50 per cent beyond its real cost’. All notions of cost control evaporated as military force became a vital part of the Company’s operations, and membership of the officer corps purchased a share of the plunder following a successful military adventure. While the numbers of soldiers under Company command grew four times during the 1760s, the numbers of officers expanded ten-fold to take advantage of the plunder of war. By 1770-71, the Company’s military and commercial spending in Bengal had reached £3,210,000, 50 per cent more than its revenues.

Far-sighted observers quickly concluded that the scale of the Company’s acquisitions overwhelmed its management capabilities. Even before the acquisition of the diwani, Charles Jenkinson was writing that ‘the affairs of this Company seem to become much too big for the management of a body of merchants’. Crucially, the boardroom battles in London had made the Company a plaything of competing shareholder forces, sending a clear signal to the management of its subsidiaries in the East that the Company was now ripe for liquidation from within. In a revealing minute written by Clive in September 1766, the hero of Plassey traced the problem to ‘the conduct of governors, who, too eager in the pursuit of private interest, have involved themselves in affairs which could not be reconciled to the strict principles of integrity’ – as ever, excusing his own conduct from criticism.
What had allowed the ‘get rich-quick’ appetites of the Company’s executives to take hold so disastrously was the removal of the Nawab’s regulatory authority. Just as a great oak or deodar provides valuable shade in a forest, so strong regulation provides the framework within which the economic ecosystem can flourish; weaken or remove it and anarchy and oppression will follow. In so many ways, the long term interests of the Company as a trading concern would have been better served through partnership with a strong local ruler rather than market domination. By the end of the 1760s, the Company’s directors were recognizing that Bengal had been a hollow acquisition. Instead of the untold riches they had expected, the Company had ‘only exchanged a certain profit in commerce for a precarious one in revenue’.

In London, news of the famine generated a genuine sense of horror and humanitarian concern. The first inklings of what was taking place reached London in December 1770, when the Gentleman’s Magazine reported that ‘provisions were so scarce in the Company’s new acquisitions that parents brought their children to sell them for a morsel of bread’. When the full story became known, horror turned to outrage at the Company’s negligence. As Horace Walpole said at the time, ‘we have murdered, deposed, plundered, usurped – nay, what think you of the famine in Bengal, in which three millions perished, being caused by a monopoly of provisions by the servants of the East Indies’.”3

B. The True Causes of Intense Poverty and Repeated Famines in India: The Ruthless and Selfish Policies of the East India Company and the British Parliament

In his book “The Economic History of India under the Early British Rule” Romesh Chandra Dutta, writes that “What are the causes of the intense poverty and repeated famines in India? Superficial explanations have been offered one after another, and have been rejected on close examination. It was said that the population increased rapidly in India, and that such increase must necessarily lead to famines; it is found on inquiry that the population has never increased in India at the rate of England, and that during the last ten years it has altogether ceased to increase. It was said that the Indian cultivators were careless and improvident, and that those who did not know how to save when there was plenty, must perish when there was want; but it is known to men who have lived all their lives among these cultivators, that there is not a more abstemious, a more thrifty, a more frugal race of peasantry on earth. It was said that the Indian money-lender was the bane of India and by his fraud and extortion kept the tillers of the soil in a chronic state of indebtedness; but the inquiries of the latest Famine Commission have revealed that the cultivators of India are forced under the thralldom of money-lenders by the rigidity of the Government revenue demand. It was said that in a country where the people depended almost entirely on their crops, they must starve when the crops failed in years of drought; but the crops in India, as a whole, have never failed, there has never been a single year when the food supply of the country was insufficient for the people, and there must be something wrong, when failure in a single province brings on a famine, and the people are unable to buy their supplies from neighboring provinces rich in harvests.

Deep down under all these superficial explanations we must seek for the true causes of Indian poverty and Indian famines. The economic laws which operate in India are the same as in other countries of the world; the causes which lead to wealth among other nations lead to prosperity in India. Does agriculture flourish? Are industries and manufactures in a prosperous condition? Are the finances properly administered, so as to bring back to the people an adequate return for the taxes paid by them? Are the sources of national wealth widened by a Government anxious for the material welfare of the people? These are questions which the average Englishman asks himself when inquiring into the economic condition of any country in the world; these are questions which he will ask himself in order to ascertain the truth about India.

It is, unfortunately, a fact which no well-informed Indian official will ignore, that, in many ways, the sources of national wealth in India have been narrowed under British rule. India in the eighteenth century was a great manufacturing as well as a great agricultural country, and the products of the Indian loom supplied the markets of Asia and of Europe. It is, unfortunately, true that the East Indian Company and the British Parliament, following the selfish commercial policy of a hundred years ago, discouraged Indian manufacturers in the early years of British rule in order to encourage the rising manufactures of England. Their fixed policy, pursued during the last decades of the eighteenth century and the first decades of the nineteenth, was to make India subservient to the industries of Great Britain, and to make the Indian people grow raw produce only, in order to supply material for the looms and manufactories of Great Britain. This policy was pursued with unwavering resolution and with fatal success; orders were sent out to force Indian artisans to work in the Company’s factories; commercial residents were legally vested with extensive powers over villages and communities of Indian weavers; prohibitive tariffs excluded Indian silk and cotton goods from England; English goods were admitted into India free of duty or on payment of a nominal duty.

The British manufacturer, in the words of the historian, H. H. Wilson, ‘employed the arm of political injustice to keep down and ultimately strangle a competitor with whom he could not have contended on equal terms;’ millions of Indian artisans lost their earnings; the population of India lost one great source of their wealth. It is a painful episode in the history of British rule in India; but it is a story which has to be told to explain the economic condition of the Indian people, and their present helpless dependence on agriculture. The invention of the power-loom in Europe completed the decline of the Indian industries; and when in recent years the power-loom was set up in India, England once more acted towards India with unfair jealousy. An excise duty has been imposed on the production of cotton fabrics in India which disables the Indian manufacturer from competing with the manufacturer of Japan and China, and which stifles the new steam-mills of India.

Agriculture is now virtually the only remaining source of national wealth in India, and four-fifths of the Indian people depend on agriculture. But the Land Tax levied by the British Government is not only excessive, but, what is worse, it is fluctuating and uncertain in many provinces. In England, the Land Tax was between one shilling and four shillings in the pound, i.e., between 5 and 20 per cent, of the rental, during a hundred years before 1798, when it was made perpetual and redeemable by William Pitt. In Bengal the Land Tax was fixed at over 90 per cent, of the rental, and in Northern India at over 80 per cent, of the rental, between 1793 and 1822. It is true that the British Government only followed the precedent of the previous Mahomedan rulers, who also claimed an enormous Land Tax. But the difference was this that what the Mahomedan rulers claimed they could never fully realize; what the British rulers claimed they realized with rigor. The last Mahomedan ruler of Bengal, in the last year of his administration (1764), realized land revenue of £817,553; within thirty years the British rulers realized land revenue of £2,680,000 in the same Province. In 1802 the Nawab of Oudh ceded Allahabad and some other rich districts in Northern India to the British Government.

The land revenue which had been claimed by the Nawab in these ceded districts was £1,352,347; the land revenue which was claimed by the British rulers within three years of the cession was £1,682,306. In Madras, the Land Tax first imposed by the East India Company was one-half the gross produce of the land. In Bombay, the land revenue of the territory conquered from the Mahrattas in 1817 was £800,000 in the year of the conquest; it was raised to £1,500,000 within a few years of British rule; and it has been continuously raised since. ‘No Native Prince demands the rent which we do,’ wrote Bishop Heber in 1826, after travelling all through India, and visiting British and Native States. ‘A Land Tax like that which now exists in India,’ wrote Colonel Briggs in 1830, ‘professing to absorb the whole of the landlord’s rent, was never known under any Government in Europe or Asia.’

The people of Bengal and of Northern India gradually obtained some relief from the heavy land assessment of the early years of British rule. In Bengal the assessment was made permanent; and as it has not been raised with the extension of cultivation, it now bears (including Road and Public Work cesses, which have been since imposed on the rental) a ratio of about 35 per cent, on the rental. In Northern India the assessment was not made permanent, but it was reduced to slightly over 50 per cent., including all cesses, in 1855. But new cesses were added; calculations were made, not on the current, but on the prospective rental, until the tax rose to close upon 60 per cent, on the rental.

In Madras and Bombay things are worse. There the Land Tax is paid generally by the cultivators of the soil, there being, in most parts of those provinces, no intervening landlords. The British Government declared its intention in 1864 of realizing as Land Tax about one-half of the economic rent. But what the British Government does take as Land Tax at the present day sometimes approximates to the whole of the economic rent, leaving the cultivators little beyond the wages of their labor and the profits of their agricultural stock. The Land Tax is revised once every thirty years; the cultivator does not know on what grounds it is enhanced; he has to submit to each renewed assessment, or to leave his ancestral fields and perish. This uncertainty of the Land Tax paralyses agriculture, prevents saving, and keeps the tiller of the soil in a state of poverty and indebtedness.

It will appear from the facts stated above that the Land Tax in India is not only heavy and uncertain, but that the very principle on which it is raised is different from the principle of taxation in all well administered countries. In such countries the State promotes the accumulation of wealth, helps the people to put money into their pockets, likes to see them prosperous and rich, and then demands a small share of their earnings for the expenses of the State. In India the State virtually interferes with the accumulation of wealth from the soil, intercepts the incomes and gains of the tillers, and generally adds to its land revenue demand at each recurring settlement, leaving the cultivators permanently poor. In England, in Germany, in the United States, in France and other countries, the State widens the income of the people, extends their markets, opens out new sources of wealth, identifies itself with the nation, and grows richer with the nation. In India, the State has fostered no new industries and revived no old industries for the people; on the other hand, it intervenes at each recurring land settlement to take what it considers its share out of the produce of the soil. Each new settlement in Bombay and in Madras is regarded by the people as a wrangle between them and the State as to how much the former will keep and how much the latter will take. It is a wrangle decided without any clear limits fixed by the law – a wrangle in which the opinion of the revenue officials is final, and there is no appeal to judges or Land Courts. The revenue increases and the people remain destitute.

Taxation raised by a king, says the Indian poet, is like the moisture of the earth sucked up by the sun, to be returned to the earth as fertilizing rain; but the moisture raised from the Indian soil now descends as fertilizing rain largely on other lands, not on India. Every nation reasonably expects that the proceeds of taxes raised in the country should be mainly spent in the country. Under the worst governments that India had in former times, this was the case. The vast sums which Afghan and Moghal Emperors spent on their armies went to support great and princely houses, as well as hundreds of thousands of soldiers and their families. The gorgeous palaces and monuments they built, as well as the luxuries and displays in which they indulged, fed and encouraged the manufacturers and artisans of India. Nobles and Commanders of the army, Subadars, Dewans, and Kazis, and a host of inferior officers in every province and every district, followed the example of the Court; and mosques and temples, roads, canals and reservoirs, attested to their wide liberality, or even to their vanity. Under wise rulers, as under foolish kings, the proceeds of taxation flowed back to the people and fructified their trade and industries.

But a change came over India under the rule of the East India Company. They considered India as a vast estate or plantation, the profits of which were to be withdrawn from India and deposited in Europe. They reserved all the high appointments in India for their own nominees seeking a lucrative career in the East. They bought their merchandise out of the revenues of India, and sold it in Europe for their own profit. They vigorously exacted from India a high interest on their stock-in-trade. In one shape or another all that could be raised in India by an excessive taxation flowed to Europe, after paying for a starved administration.

The East India Company’s trade was abolished in 1833, and the Company was abolished in 1858, but their policy remains. Their capital was paid off by loans which were made into an Indian Debt, on which interest is paid from Indian taxes. The empire was transferred from the Company to the Crown, but the people of India paid the purchase-money The Indian Debt, which was £51,000,000 in 1857, rose to £97,000,000 in 1862. Within the forty years of peace which have succeeded, the Indian Debt has increased continuously, and now (1901) amounts to £200,000,000. The ‘Home Charges’ remitted annually out of the Indian revenues to Great Britain have increased to sixteen millions. The pay of European officers in India, virtually monopolizing all the higher services, comes to ten millions. One-half of the net revenues of India, which are now forty four millions sterling, flows annually out of India. Verily the moisture of India blesses and fertilizes other lands.”4

“The whole of Bengal was considered as an estate, a source of profit to the East India Company. The taxes raised from thirty millions of people were, after deduction of expenses and allowances, not to be spent in the country and for the benefit of the country, but to be sent to England as profits of the Company. An annual remittance of over a million and a half sterling was to be made from a subject country to the shareholders in England. A stream of gold was to flow perennially from the revenues of a poor nation to add to the wealth of the richest nation on the face of the earth.

We thus find that the very first scheme which was framed by British rulers for the administration of India involved that fatal Economic Drain which has now swelled to an annual remittance of many millions sterling. The victory of British arms in India, the organised rule introduced into that country by the British, the maintenance of peace, the dispensation of justice, and the spread of western education, deserve all the praise which has been bestowed upon them. But the financial relations between India and England have always from the very commencement been unfair and India, with her vast resources, her fertile soil, and her industrious population, is now the poorest country on earth after a century and a half of British rule.”5

1. Nick Robins, The Corporation that Changed the World, pp. 90-93, Orient Longman Private Limited, Hyderabad, 2006
2. Ibid., p. 93
3. Ibid., pp. 94-95
4. Romesh Chandra Dutt, The Economic History of India – I, p. xxi-xxvi, Director, Publications Division, New Delhi, 2006
5. Ibid., pp. 25-26

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