Deindustrialisation in India

The process of de-industrialisation is an economic change in which employment in the manufacturing sector declines due to various economic or political reasons.^[1] The decline in employment in manufacturing is also followed by the fall in the share of manufacturing value added in GDP. The process of de-industrialisation can be due to development and growth in the economy and it can also occur due to political factors. In other words, the term de-industrialisation means a general reduction in the industrial capacity and came into prevalence in India with the decline and collapse of the handicrafts industry by external competition from British-manufactured products during the 19th century.

The initial concept of Indian de-industrialisation was introduced by Sir William Bentinck who acted as the Governor-General of India between 1833 and 1835. His policy significantly impacted the cotton industry of India. The effect of British cotton industry on Indian cotton industry was originally presented by Karl Marx in Das Kapital.^[2]

The historical de-industrialisation processes observed in the British colonies such as India are said to be a product of colonial rule. The Industrial Revolution in Europe is followed by a significant decline in the artisan and manufacturing activities in European colonies in Asia such as India.^[3]

Indian economy between 1600 and 1800[]

India's global contribution in world GDP

Prior to the colonisation of India, the country had reached significant fineness in the production of luxury products in the form of handicrafts. These luxury goods consisted of cotton, silk, and ivory which had a significant market in Europe.^[4] Before mercantilism, these products were transferred to the European market through Arab traders and these products were considered very significant in bringing gold, silver and other valuable exchange items into the Arab countries. During the period of Mercantilism, the link between European markets and Indian subcontinent became more direct and trade became easier. The rising import of Indian cotton into Europe created significant competition for the British wool industry.^[5]

The GDP per capita of India declined sharply during the seventeenth and eighteenth century period from over 60% of the British level to a mere 15% by 1871.^[6] The period from 1600 to 1871 saw an annual population growth rate of 0.22%. Industry and commerce grew rapidly during the same phase, driven particularly by exports. The production of Mughal India was around 25% of the global industry output in the early phase of 18th century. The major products exported to Europe included indigo, cotton textiles, spices, silks and peppers. The wealthiest province of Bengal Subah which generated 50% of the GDP and 12% world GDP was prominent in textile manufacturing, especially Muslin trade.^[6] Indian cultivators began extensive cultivation of maize and tobacco with increased yields due to improvements in the irrigation system. The growth in the agriculture sector expanded slowly and since it was the largest sector, total output growth was quite modest. The major exports in the manufacturing industry included steel, shipbuilding and textiles. This led to the steady reduction in GDP per capita during this period before stabilizing a bit in the 19th century.

With the introduction of British East India Company and after collection of right to revenue rights, it stopped importing gold and silver earlier used in payment for exports from India. The period from 1780 to 1860 saw dynamic shift of India's economy from processed goods exporter to raw materials and buyer of manufactured goods. Fine cotton silk exported was shifted to raw materials consisting opium, indigo and raw cotton. The cotton mill industries of the British even began to lobby government for import tax to India. The infrastructure created by the British colonial government, including legal systems, railways and telegraphs are considered towards resource exploitation, leaving industrial growth static and agriculture unable to keep up with growing population. The industry output from India declined to 2% of world's output in 1900. Britain also replaced India as the largest textile manufacturer of the world.

Indian GDP per capital

The downfall of Mughal Empire also led to the problems of aggregate supply for Indian manufactured goods. Other explanations for causes include the revolution in world transport and productivity gains by Britain from cottage production to factory goods resulted in uneconomic production in India. This resulted in Britain initially gaining control over export market and then domestic market as well.^[2] Therefore, India experienced the phase of deindustrialisation after 1810 because of favour in terms of trade shocks and free commitment of trade between the trading patterns for colonial rulers.

Cause of de-industrialisation in India[]

In the period between 1775 and 1800, significant innovations occurred in the British cotton^[where?] industry which increase their total output and the cost of the production declined. It created significant challenges for the Indian produced cotton which was high in prices. In addition, during this time period, the control and influence of British increased in the eastern region of the globe and their control on Indian sub-continent increased significantly. Furthermore, the policies of the British rulers of these colonies considered the need of increasing the market for British produced cotton.^[3] The British cotton was often produced in surplus quantity by using sophisticated machinery and was exported to the British colonies. The British cotton faced unequal competition from the indigenous cotton industry of the colonies. The prices of the British cotton industry were reduced to significantly to increase the dominance of the British cotton.^[4] It led to a decline in the indigenous cotton industry of the colonies and the domestic activities associated with the production of Indian cotton fell. The fall of the Indian cotton industry is one of the important factors behind the decline of Indian GDP under British rule. The standard of living in Britain increased from the middle of the seventeenth century and in the same period, the standard of living in India decreased significantly. During the 1600s, the Indian GDP was 60 percent of the British GDP and by the end of the 19th century it decreased to less than 15 percent in comparison.^[7]

The fall in the hegemony of Mughals reduced the overall productivity of agriculture and reduced the supply of grains.^[2] The grain was the primary consumption good for the Indian workers and was non-tradeable. The reduction in the supply of grain resulted in the rise of its prices. This rise in prices and negative supply shock led to a rise in the nominal wages in the cotton and weaving industry. The increased competition from British cotton and rising nominal wages reduced the profitability of the cotton industry of India. Thus, the negative supply shock in agricultural production is also an important reason behind the de-industrialisation of cotton– industries.

The short run as well as long run impact on living standards and growth rate of GDP providing agriculture sector competitive advantage with strengthening of the productivity advance on the land at home or increasing openness to world in turn increases GDP in the short run.^[2] The causes of de-industrialisation are region or country specific as in the case of India in the 19th and 20th century. The colonial rule under British led to the decline of textile and handicrafts industries through their policies and introduction of machine made goods in to the Indian market. Some of the causes of de-industrialisation in India during that period were:

• Introduction of machine made goods in the Indian subcontinent at a cheaper rate, which led to the decline of the traditional textile industry of India.

• Tariff policy opted by the British led to the decline of the handicraft industry, the British government started using preferential trade policies under which British goods were entering in India duty free or no nominal duty payment while Indian exporters had to pay high duty on export goods to British Mainland.

• Internal Causes, as there were no efforts made to explore products for the Indian markets, the international trade market was in the control of international traders, the manually skilled laborers and traders associated with it were at the pity of the international trade merchants as far as supply or demand propagation in international trade markets was concerned. The guilds or craftsmen organization was also definitely very weak in India as compared to other nations.

• Changes in social conditions that resulted in consistent decline in manufacturing employment that requires access to raw materials and natural resources.^[2]

• British rule establishment also resulted in the loss of powers of the craftsmen organization and other bodies that used to supervise and regulate the trade, which results in the fall down of raw materials as well as the skilled laborers which further results in the decline of market value of the products

• The abolition of court culture and urban aristocrats resulted in decreased demand for these handicrafts as product demand for these dried up.

Impact of de-industrialisation in India[]

The effect of de-industrialisation on the Indian subcontinent is difficult to observe before 1810.^[2] The factory driven technologies for the production of cotton appeared between 1780 and 1820, but, India started to lose its dominant position as the exporter of cotton before this period due to low wages in the Indian cotton industry. It also acted as a catalyst in migrating work force from cotton industry to Indian grain industry. The production capacity of the Indian cotton industry started to decline due to the prevailing wage rate. Furthermore, Indian de-industrialisation is also hard to track due to its relatively low share of textile exports in the total textile production.

In India, by 1920, the trade to GDP ratio declined and international trade reshaped the domestic structure of the economy.^[8] India became one of the major markets for the British made cotton yarns and cloths and became one of the large suppliers of Grain. The price of cotton decreased by more than a third in the 1900s as compared to the level in 1800.^[8] The fall in prices of cotton significantly reduced the production of Indian hand spinning industry which is considered to be the most important specimen of de-industrialisation in India. The industrial revolution of the British cotton industry resulted in the globalization of its colonies as a mean to export excess production. This resulted in the fall the production of cotton in the indigenous industries of colonies due to low prices of British cotton and its derived products.

The large scale de-industrialisation brought far reaching impacts on the economy with loss to traditional economy, which was earlier considered as a blend of agriculture and handicrafts. Spinning and weaving functioned as subsidiary industries in the old economy resulted in differences to the interior equilibrium of the rural market. As an outcome, this led to manually skilled labourers shifting back to agricultural productivity and such overcrowding decreased the efficiency of agriculture sector as well. Land holding fragmentation, excessive cultivation and low-grade and infertile land utilization are the straight impacts of the same. It created a large base of underemployed and disguised rural unemployed. The number of workers engaged in agriculture sector increased from 7.17 crores to 10.02 crores in 1931 and industrial employed workers decreased from 2.11 crores to 1.29 crores during the same period.^[9]

The de-industrialisation of India played an important role in the underdevelopment and increasing poverty in the country. The British-led globalisation of Colonial India led to the significant inflow of British cotton which led to falling in the output of the domestically produced cotton due to low prices. Consequently, the de-industrialisation process increased the unemployment of artisan and employees of indigenous cotton industry of India. The unemployed artisans and employees resorted to agriculture and it also contributed to the regression towards agriculture and resulted in the surplus labour of land.^[8] The colonial policies associated with the land and taxation undermined ability of the peasant class to control and command the land. It pushed these peasants to take significant debt from non-cultivating moneylenders who charged significantly high interests and aided in the underdevelopment and poverty.

Conclusion of de-industrialisation in India[]

As the economic growth was on much minor scale, the effects of this on countering the de-industrialisation are much smaller. As Amiya Bagchi stated: “Thus the process of de-industrialisation proved to be a process of pure immoderation for the several million persons...^[3]” The reality is the group declination resulting from the process of de-industrialisation.

See also[]

• Economic Deindustrialisation of India

Reference lists[]