Mughal Empire: During the Mughal period (1526-1858) India changed between became the first or second-largest economy in the world. The gross domestic product of India in the 16th century was estimated at about 24.5% of the world economy.
An estimate of India’s pre-colonial economy puts the annual revenue of Emperor Akbar’s treasury in 1600 at £17.5 million (in contrast to the entire treasury of Great Britain two hundred years later in 1800, which totalled £16 million). The gross domestic product of Mughal India in 1600 was estimated at about 22.6% the world economy, the largest in the world.
By this time the Mughal Empire had expanded to include almost 90 per cent of South Asia, and enforced a uniform customs and tax-administration system. In 1700 the exchequer of the Emperor Aurangzeb reported an annual revenue of more than £100 million.
Maratha Empire: In the 18th century, Mughals were replaced by the Maratha Empire in much of India, Maratha rule expanded to almost 2.8 million km². While the other small regional states who were mostly late Mughal tributary states such as the Nawabs in the north and the Nizam in south India remained. Tax administration system in India was collected by officers of the Maratha empire, however, the Mughal tax administration system was left largely intact.
By this time India again had the largest economy in the world, with a (24.4%) share of world GDP, followed by Manchu China and Western Europe. Nevertheless, a devastating famine broke out in the eastern coast in early 1770s killing 5 per cent of the national population.
British rule: Main articles: Economy of India under Company rule and Economy of India under the British Raj After gaining the right to collect revenue in Bengal in 1765, the East India Company largely ceased importing gold and silver, which it had hitherto used to pay for goods shipped back to Britain. In addition, as under Mughal rule, land revenue collected in the Bengal Presidency helped finance the Company’s wars in other part of India. Consequently, in the period 1760-1800, Bengal’s money supply was greatly diminished; Furthermore, the closing of some local mints and close supervision of the rest, the fixing of exchange rates, and the standardization of coinage, paradoxically, added to the economic downturn. During the period, 1780–1860, India changed from being an exporter of processed goods for which it received payment in bullion, to being an exporter of raw materials and a buyer of manufactured goods. More specifically, in the 1750s, mostly fine cotton and silk was exported from India to markets in Europe, Asia, and Africa; by the second quarter of the 19th century, raw materials, which chiefly consisted of raw cotton, opium, and indigo, accounted for most of India’s exports. Also, from the late 18th century British cotton mill industry began to lobby the government to both tax Indian imports and allow them access to markets in India. Starting in the 1830s, British textiles began to appear in—and soon to inundate—the Indian markets, with the value of the textile imports growing from £5.2 million 1850 to £18.4 million in 1896.
The British colonial rule created an institutional environment that did stabilise the law and order situation to a large extent. The British foreign policies however stifled the trade with rest of the world. They created a well-developed system of railways, telegraphs and a modern legal system. The infrastructure the British created was mainly geared towards the exploitation of resources ofin the world and totally stagnant, with industrial development stalled, agriculture unable to feed a rapidly accelerating population. They were subject to frequent famines, had one of the world’s lowest life expectancies, suffered from pervasive malnutrition and were largely illiterate.
GDP estimatesAn estimate by Angus Maddison argues that India’s share of the world income went from 24.4% in 1700, comparable to Europe’s share of 23.3%, to a low of 3.8% in 1952. While Indian leaders during the Independence struggle and left-nationalist economic historians have blamed the colonial rule for the dismal state of India’s economy, a broader macroeconomic view of India during this period reveals that there were segments of both growth and decline, resulting from changes brought about by colonialism and a world that was moving towards industrialization and economic integration.
Price of Silver – Rate of Exchange: 1871-72 to 1892-93 Period Price of Silver (in pence per Troy ounce) Rupee exchange rate (in pence)
1871–1872 60½ 23 ⅛
1875–1876 56¾ 21⅝
1879–1880 51¼ 20
1883–1884 50½ 19½
1887–1888 44⅝ 18⅞
1890–1951 47 11/16 18⅛
1891–1892 45 16¾
1892–1893 39 15
Source: B.E. Dadachanji. History of Indian Currency and Exchange, 3rd enlarged ed.
(Bombay: D.B. Taraporevala Sons & Co, 1934), p. 15
The fall of the RupeeSee also: The crisis of silver currency and bank notes (1750–1870)
After its victory in the Franco-Prussian War (1870–71), Germany extracted a huge indemnity from France of £200,000,000, and then moved to join Britain on a gold standard for currency. France, the US and other industrializing countries followed Germany in adopting a gold standard throughout the 1870s. At the same time, countries, such as Japan, which did not have the necessary access to gold or those, such as India, which were subject to imperial policies that determined that they did not move to a gold standard, remained mostly on a silver standard. A huge divide between silver-based and gold-based economies resulted. The worst affected were economies with a silver standard that traded mainly with economies with a gold standard. With discovery of more and more silver reserves, those currencies based on gold continued to rise in value and those based on silver were declining due to demonetization of silver. For India which carried out most of its trade with gold based countries, especially Britain, the impact of this shift was profound. As the price of silver continued to fall, so too did the exchange value of the rupee, when measured against sterling.
British East India Company rule1775–1800
During this period, the East India Company began tax administration reforms in a fast expanding empire spread over 250 million acres (1,000,000 km2), or 35 per cent of Indian domain. Indirect rule was also established on protectorates and buffer states. China was the world’s largest economy followed by India and France.
The Company treasury reported annual revenue of £111 million in circa 1800. This needs to converted to Indian Rupees with the falling price of Rupee to assess the impact on Indian economy. Almost all of the Indian land revenues were diverted by the Company to help the British Crown defend herself in the Napoleonic Wars.
China was the world’s largest economy followed by India and France. The gross domestic product of India in 1825 was estimated at about 50 per cent that of China. British cotton exports reach 3 per cent of the Indian market by 1825.
China was the world’s largest economy followed by the UK and India. Industrial revolution in the UK catapulted the nation to the top league of Europe for the first time ever. During this period, British foreign and economic policies began treating India as an unequal partner for the first time. English replaced Persian as the official language of India. The gross domestic product of India in 1850 was estimated at about 40 per cent that of China. British cotton exports reach 30 per cent of the Indian market by 1850.(pdf)
Decline of the cotton textile industryRay (2009) raises three basic questions about the 19th-century cotton textile industry in Bengal: when did the industry begin to decay, what was the extent of its decay during the early 19th century, and what were the factors that led to this? Since there is no data on production, Ray uses the industry’s market performance and its consumption of raw materials. Ray challenges the prevailing belief that the industry’s permanent decline started in the late 18th century or the early 19th century. The decline actually started in the mid-1820s. The pace of its decline was, however, slow though steady at the beginning, but reached crisis point by 1860, when 563,000 workers lost their jobs. Ray estimates that the industry shrank by about 28% by 1850. However, it survived in the high-end and low-end domestic markets. Ray agrees that British discriminatory policies undoubtedly depressed the industry’s export outlet, but suggests its decay is better explained by technological innovations in Britain.
British Raj 1850–1875The formal dissolution of the declining Mughal Dynasty heralded a change in British treatment of Indian subjects. During the British Raj, massive railway projects were begun in earnest and government jobs and guaranteed pensions attracted a large number of upper caste Hindus into the civil service for the first time. China was the world’s largest economy followed by the USA, UK and India. The gross domestic product of India in 1875 was estimated at about 30 per cent that of China (or 60 per cent that of the USA), not taking into account the falling price of Rupee. British cotton exports reach 55 per cent of the Indian market by 1875