Economic Policy and Development in the 1860s

Economically, this was an era of increased commercial agricultural production, rapidly expanding trade, early industrial development, and severe famine. The total cost of suppressing the Revolt of 1857-1859, which was equivalent to a normal year’s revenue, was charged to India and paid off from increased revenue resources in four years. The major source of government income throughout this period remained the land revenue, which, as a percentage of the agricultural yield of India’s soil, continued to be “an annual gamble in monsoon rains.” Usually, however, it provided about half of British India’s gross annual revenue, or roughly the money needed to support the army. The second most lucrative source of revenue at this time was the government’s continued monopoly over the flourishing opium trade to China; the third was the tax on salt, also jealously guarded by the Crown as its official monopoly preserve. An individual income tax was introduced for five years to pay off the war deficit, but urban personal income was not added as a regular source of Indian revenue until 1886.

Despite continued British adherence to the doctrine of laissez-faire during that period, a ten percent customs duty was levied in 1860 to help clear the war debt, though it was reduced to seven percent in 1864 and to five percent in 1875. The abovementioned cotton import duty, abolished in 1879 by Viceroy Lytton, was not reimposed on British imports of piece goods and yarn until 1894, when the value of silver fell so precipitously in the world market that the Government of India was forced to take action, even against the economic interests of the home country (i.e., textiles manufacturers of Lancashire), by adding enough rupees to its revenue to make ends meet. Bombay’s textile industry had by then developed more than 80 power mills, and Jamsetji Tata’s huge Empress Mill was in full operation at Nagpur, competing directly with Lancashire mills for the vast Indian market. Britain’s mill owners again demonstrated their power in Calcutta by forcing the Government of India to impose an “equalising” five percent excise tax on all cloth manufactured in India, thereby convincing many Indian mill owners and capitalists that their best interests would be served by contributing financial support to the fledgling national movement.

Growth of the Railway Network

Britain’s major contribution to India’s economic development throughout the era of Crown rule was the railroad network that spread so swiftly across the subcontinent after 1858 , when there were barely 320 km of track in all of India. In 1845, two companies, the East Indian Railway Company operating from Calcutta and the Great Indian Peninsular Railway (GIPR) operating from Bombay were formed. The first train to be commissioned to service was on December 22, 1851 for hauling of construction material in Rourkee. But the first passenger train started operations on April 16, 1853 between Bori Bunder, Bombay and Thane covering a distance of 34 km. It marked the beginning of railways in India.

Because financial difficulties were hampering further investment in the railways, the British government tried to inspire private entrepreneurs to set up rail links under a plan that would provide them with an assured return of 5% during the initial years of operation. But once the rail link was completed, the ownership would pass on to the government, though the concerned company could operate the rail link. (This could be termed an early form of public private partnership). By 1869 more than 8,000 km of steel track had been completed by British railroad companies, and by 1900 there were some 40,000 km of rail laid. By the start of World War I the total reached 56,000 km, almost the full growth of British India’s rail net. In 1901 the British constituted the Railway Board. It worked under the department of Commerce and Industry. For the first time after the railway board was constituted the railway started making profit. By 1907 all the railway companies were taken over by the Government. By 1920 the network of Indian railway had increased to 61,220 km. Realising a need for a central management, the government took over the functioning of the railways and detached the finances of the railways from other governmental revenues. Between 1920 and 1929 the railways witnessed enormous growth, but were severely crippled afterwards by the great depression and Second World War. By 1946 all rail links were taken over by the government.

Initially, the railroads proved a mixed blessing for most Indians, since by linking India’s agricultural, village-based heartland to the British imperial port cities of Bombay, Madras, and Calcutta, they served both to accelerate the pace of rawmaterial extraction from India and to speed up the transition from subsistence food to commercial agricultural production. Middlemen hired by port-city agency houses rode the trains’ inland and induced village headmen to convert large tracts of grain-yielding land to commercial crops.

Large sums of silver were offered in payment for raw materials when the British demand was high, as was the case throughout the American Civil War (1861-65); however, but after the Civil War ended, restoring raw cotton from the southern United States to Lancashire mills, the Indian market collapsed. Millions of peasants weaned from grain production now found themselves riding the boom-and-bust tiger of a world-market economy. They were unable to convert their commercial agricultural surplus back into food during depression years, and from 1865 through 1900 India experienced a series of protracted famines, which in 1896 was complicated by the introduction of the bubonic plague (spread from Bombay, where infected rats were brought from China). As a result, though the population of the subcontinent increased dramatically from about 200 million in 1872 (the year of the first almost universal census) to more than 319 million in 1921, the population may have declined slightly between 1895 and 1905.

The spread of railroads also accelerated the destruction of India’s indigenous handicraft industries, for trains filled with cheap competitive manufactured goods shipped from England now rushed to inland towns for distribution to villages, underselling the rougher products of Indian craftsmen. Entire handicraft villages thus lost their traditional markets of neighbouring agricultural villagers, and craftsmen were forced to abandon their looms and spinning wheels and return to the soil for their livelihood. By the end of the 19 th century a larger proportion of India’s population (perhaps more than threefourths) depended directly on agriculture for support than at the century’s start, and the pressure of population on arable land increased throughout this period. Railroads also provided the military with swift and relatively assured access to all parts of the country in the event of emergency and were eventually used to transport grain for famine relief as well. The rich coalfields of Bihar (now located in Jharkhand) began to be mined during this period to help power the imported British locomotives, and coal production jumped from roughly 500,000 tons in 1868 to some 6,000,000 tons in 1900 and more than 20,000,000 tons by 1920 . Coal was used for iron smelting in India as early as in 1875, but the Tata Iron and Steel Company, which received no government aid, did not start production until 1911, when, in Bihar, it launched India’s modern steel industry. Tata grew rapidly after World War I, and by World War II it had become the largest single steel complex in the British Commonwealth. The jute textile industry, Bengal’s counterpart to Bombay’s cotton industry, developed in the wake of the Crimean War (1853-1856), which, by cutting off Russia’s supply of raw hemp to the jute mills of Scotland, stimulated the export of raw jute from Calcutta to Dundee. In 1863 there were only two jute mills in Bengal, but by 1882 there were 20 , employing more than 20,000 workers.

The most important plantation industries of this era were tea, indigo, and coffee and the important features of plantation industries are given here.

  • British tea plantations were started in north India’s Assam Hills in the 1850s and in south India’s Nilgiri Hills some 20 years later.
  • By 1871 there were more than 300 tea plantations, covering in excess of 12,000 hectares and producing some 3,000 tons of tea.
  • By 1900 India’s tea export to Britain, was greater than that of China.
  • The flourishing indigo industry of Bengal and Bihar was threatened with extinction during the “Blue Mutiny” (violent riots by cultivators in 1859-1860), but India continued to export indigo to European markets until the turn of the century, after which synthetic dyes gradually made that natural product obsolete.
  • Coffee plantations flourished in south India from 1860 to 1879, after which disease blighted the crop and sent Indian coffee into a decade of decline.


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