Growth of Modern Industry

• British   rule  has   been   seen   as   an   agency   of   “modernization”   in   India  à  Sumit  
Sarkar  has   investigated   the   role   of   foreign   capital   in   the   growth   of  
indigenous  industry  à  he  argues  that  the  British  presence  posed  “structural  
constraints”   for   the   growth   of   modern   industryà  e.g.(1)   the   Bombay  
industry   was   subject   to   discriminatory   tariffs   and   excise   policies;   (2)  
the  organized   money-­‐market   was   largely   under   white   control;  (3)   the  
indigenous   industry   was   primarily   involved   in   export   trade   that   was   under  
British   control;   (4)   the   network   of  railways  was   geared   entirely   to   British  
commercial   and   strategic   needs  (as   it   charged   discriminatory   freight-­‐rates  
from  Indian  businessmen).
• Sarkar  also  examined  the  relationship  between  indigenous  industry    and  
Lancashire  à  he  argued  it  was  not  one  of  total  conflict  à  (1)  Up  to  1890s,  the  
Bombay   industry   primarily  concentrated   on   yarn   production  for   an   export  
market   and   Indian   handlooms   (cotton   piece   goods,   the   primary   Lancashire  
export,   was   relatively   unaffected);   (2)   however,   the    Ahmadabad   mills  were  
oriented  towards  weaving  and  not  spinning  à  thus  posing  a  challenge  to  British  
commercial   interests  à  this   confrontations   also   reflected   in   the   greater  
involvement  of  Ahmadabad  in  the  national  movement.
• Lastly,   Sarkar   also   looked   at  nature   of   industrial   employment  à  (1)  
by  1911,  only  2.1   million   of   303   million   Indians   were   employed   in  
organized   industry;   (2)   bulk   of   industrial   workforce   was  concentrated   in  
urban   centres;   (3)   in   the   East,  recruitment   to   industry   was   done   through  
intermediary   contractorsà  as   a   result,   the  Calcutta   industrial   area  had   a  
predominantly  non-­‐Bengali  workforce   as   contractors   got   labour   from   Bihar   and  
East   UPßà  in   contrast,  Ahmadabad   and   Bombay   drew   workers   from  
neighbouring  areas.
Nature  of  Modern  Industrial  Growth

• Aditya   Mukherjee  à  1914   to   1947   saw  growth   of   indigenous   industry  

and  capitalist  class.
(1) Indigenous   industry  à  geared   towards   import   substitution   of   major  
consumer   goods   (sugar,   textiles)   and   intermediate   and   capital   goods  
(cement,   iron   and   steel)  à  A.K   Bagchi  said   that   by1939,  India   was  self-­‐
sufficient  in  major  consumer  good  requirements.
(2) Inward   orientation  of   the   economy  à  indigenous   capitalists  began  
producing  for  the  home  market  à  there  was  a  link  between  agriculture  
and   industry  =  earlier  agriculture   production   determined   by   metropolitan  
needs;  now  agricultural   production   oriented   towards   indigenous  
industrial   demand   for   raw   materials  (Eg:  raw   cotton   was   used   by  
Bombay   industry)  à  this   inward   orientation   due   to   (a)  declining  
profitability  of   export   trade  (↓   demand   for   Indian   raw   materials   after   the  
depression);(b)  expanding   domestic   market   demand  ßà  met  
by  domestic  industry.
(3) Growth   of   internal   trade  à  since  industrial   growth   was   not   linked   to  
international   trade   but   production   for   the   domestic   market  à  there   was  
 an  expansion   in   internal   trade  (S   Subramanian  has   held   that  sugar   trade  
tripled  +  cotton  piece  goods,  cement,  iron  and  steel  trade  tripled)
(4) Pre-­‐capitalist   forms   of   accumulation  in   trade,   usury   and   landlordism  
were   now  deployed   in   industry  as   the  returns   on   investment   were  
higher  à  (1)  princely   houses   financed   big   industry;   (2)mercantile  
capital  was  used  to  finance  small  scale  enterprise
(5) Growth   of   indigenous   industry  altered   composition   of   foreign  
trade  à  there   was   an(1)  ↑   export   of   manufactured   goods;   (2)   ↓   export   of  
raw  materials;  (3)  ↓  import  of  manufactured  goods  (eg:  processed  sugar)  due  
to  import  substitution.
(6) B.R   Tomlinson  à  there   were   no   large   capital   inflows   to   aid   the  
growth   of   modern   industry  à  net  foreign   industrial   investment   =   ₤17  
million;  whereas  total  investment  in  industry  =  ₤144  million
AK  Bannerjiàreason  à  after  World  War  I    à  (1)  the  capital  account  had  
a   deficit  (i.e.   the  debt   repayment   to   Britain   exceeded   the   net  foreign  
investments   in   India);   (2)   there   was   a  current   account  
surplus  (i.e.  British   purchases   from   India   exceeded   British   exports   to  
India)  à  this  trading   surplus   led   to   capital   accumulation   in  
India  à  growth   of   domestic   entrepreneurs  who   increasingly   started  
controlling  industrial  enterprises  (by   facilitating   the  divestment  of   foreign  
capital)
(7) Emergence   of   entrepreneurs  à  (1)   accounted   for   an   overwhelming  
proportion   of   investments;   (2)   edged   out   European   influence   through  
aggressive  capital  investments;  (3)  economic  sectors  and  regions  where  
indigenous   capital   was   invested   witnessed   faster   growth   than   areas  
where   European   interests   dominated;  (4)  almost   83%   of   capital   was  
being   held   in   Indian   banks(capitalization   of   domestic   banks   as   against  
foreign  banks).
Reasons  for  Growth  of  Modern  Industry

• Colonial   View  à  I.M   Drummond  and  Clive   Dewey  argue   that  modern  
industry   grew   due   to   the   “colonial   impetus”  ßà  these   historians   cite  
the  Fiscal  Autonomy  Convention  of  1919  as  a  “deliberatesurrender  of  Britain’s  
export   market”    that  facilitated   import   substitution  of   consumer  
goods  à  these   historians   further   argue   that  India   still   did   not   industrialize  
due  to  the  ineptness  of  indigenous  entrepreneurs.    
• Tirthankar   Roy   and   A.D.D   Gordonà  colonial   policy   towards   Indian  
enterprise   was   shaped   by   thepower   struggle   between   the   India  
Office  (representing   Lancaster   cloth   lobby)  and   Government   of  
India(supporting   Bombay   mill   owners)à  prior   to   1917,  the  Home  
government   prevailed   over   the   Viceroyhowever  after   WWI,   the   power  
struggle   was   resolved   in   favour   of   the   government   of   India  à  colonist  
historians   believe   this   marked   the  transfer   of  sovereignty   from   England   to  
India  à  therefore,   the  dividing   line   was   not   1947   but   1917   as   after   this  
point  the  government  facilitated  industrial  growth.
• Aditya   Mukherjee  à  critique  à  the   colonial   view  undermines   the  
decisive  structural  break  that  1947  represented  in  the  political  economy.
 • Nationalist   view:  economic   exploitation   of   India   continued   after  
1917  à  Aditya   Mukherjee   says   it   “intensified”  à  the   nature   of   imperial  
exploitation  changed  (from  industrial  interest  that  sought  to  create  a  captive  
market   for   British   goods   in   India  to  financial   interest  that   drained   capital  
from   colonies)  àthese   historians   believe   that  indigenous   industry   grew  
despite  imperial  exploitation.
• By   1900  à  primary   form   of   exploitation  à  unilateral   transfers   to  
Britain  à  in   terms   of  payment   of  home   charges,   interest   on   Indian  
debt,    military   expenditure  et   al  à  by   1917   this   =  nearly   ₤100  
millionàBritish   govt.   issued  “commission   bonds”  (accepting   ₤   from  
purchasers)   that  were   redeemable   in   Indian   rupees  (but   this   payment   was  
made  from  Indian  revenue)  à  as  a  result  (a)  Indian  revenue  was  transferred  
to   the   home   government  and   (b)  Indian   goods   were   bought   from   Indian  
revenue  and  taken  back  to  UK  à  thus,  the  apparatus  of  the  drain  depended  
on   Indian   revenues  à  attempts   to   ↑   Indian   revenue   (as   capital   outflows  
increased)  à  only   possible   area   where   revenue   could   be   increased   was  
customs   duty  à  to  double   revenue,   import   duties   were   imposed   but   to  
prevent   a   price-­‐disadvantage   for   British   manufactures  à  countervailing  
excise  duty  was  imposed  (to  ↑  price  of  indigenous  manufacturing)  à  however,  
as   the  drain   intensified  à  need   for   greater   revenue   led   to   higher   custom  
duty  ßà  the   strong   anti-­‐imperialist   movement   prevent   a   proportionate  
increase   in   excise   duty  à  therefore,over   time   the   custom   duties   facilitated  
growth  of  indigenous  industries  and  import  substitution
• After   1900  à  industrial   supremacy   of   Britain   declinedà  emergence  
of  rival   industrial   powers   like   Germany   and   Japan  à  however,   the  economic  
power   of   Britain   linked   to   its   capital  à  the   steady   stream   of   capital   from  
India   was   key   to   this  à  therefore,   financial   powers   in   India   were   never  
devolved   (a)   to   elected   governments   in   provincial   legislatures;   (b)   through  
control  over  the  Reserve  Bank
• Basudev   Chatterjee  à  new   circumstances   after   WWI   were   dictated   by  
financial   interests  à  nearly  60%   of   Indian   revenue   was   needed   for   home  
charges,   debt   servicing   and   military   expenditure  àmaintaining   Indian  
revenue   was   paramount  à  led   to   custom   duty   imposition   (and   ↓   British  
exports  to  India)  à  this  provided  the  impetus  to  domestic  production.
• A.K   Bagchi  à  indigenous   industry   did   not   emerge   due   to  
colonialism  à  the  industrial   development  was   a  product   of   the   inner  
contradictions   in   imperial   policies  that  placed   financial   interest   over  
industrial   interest  à  this   meant   that  the   increasing   need   for   revenue   through  
custom  levies  was  sought  even  at  the  cost  of  contracting  British  exports  to  
Indiaà  in   this   situation   the  British   government   preferred   indigenous  
industry   to   meet   the   domestic   demand   than   imports   from   rival   imperial  
powersà  thus  Indian  enterprise  emerged.