Book Review
15 December, 2001
Indian Economy in Colonial Period
Marcia J Frost
The Economic History of India, 1857-1947 by Tirthankar Roy; Oxford University Press, New Delhi, 2000; pp xviii + 318, Rs 395.
Throughout much of the past century, the story of Indian economic history in the modern period has too often been captured by those with an ideological agenda. On the one hand it has been captured by those who wish to defend the British Empire, and on the other by those who wish to blame all India's economic failures on her colonial past. From the mid-1960s The Indian Economic and Social History Review followed by The Cambridge Economic History of India (Cambridge University Press, 1982 and 1983) served as forums for new research by those who were willing to leave behind these dead-end agendas and to examine the past with new tools, new data and new models. Tirthankar Roy's The Economic History of India, 1857-1947 is an excellent product of the new Indian economic history, and a worthy successor to the now classic CEHI edited by Dharma Kumar, Irfan Habib and Tapan Raychaudhuri as a compilation of recent research. Intended as a text for undergraduate and graduate students in economic degree programmes at Indian universities, Roy's Economic History of India warrants a much wider audience. It is well written with none of the jarring misuse of vocabulary and awkward phrasing found in some texts, and it is more accessible to the non-specialist than the current topical volumes of The New Cambridge Economic History of India. As any text author does, Roy summarises the important literature and debates on the economy of India during the nine decades of Crown Rule, re-exploring the important issues of the past - why did India's economy grow so slowly? what roles did colonial rule and Indian conditions play in that slow growth? - and exploring those which have emerged in recent years. But Roy is more than a textbook author. Professor at the Indira Gandhi Institute of Development Research (Mumbai), Roy is one of the leading practitioners of the new economic history of India, and this book is a first class work of new economic history in which he carefully lays out alternative hypotheses, historical evidence, defensible conclusions, and still to be answered questions. Economic models are clearly identified, and motivations, risks and information asymmetries are explicitly included in the analysis. And throughout this book the emphasis is on understanding the evolution of the economy over time, the inter-relationships between sectors, and the constraints within which economic decisions were made. The variation of experiences across regions and political sovereignty is emphasised throughout. Overall economic growth may have been slow, halting and sometimes reversed, but regional, provincial and princely state experiences varied greatly. One of Roy's enduring interests is with markets - land, labour, credit and product - and the story he tells is one of markets that pre-date the colonial conquests, expanded in many dimensions throughout much of the colonial period, and made possible whatever economic growth that occurred. Like the economic growth it fostered, the process of commercialisation was strong in some regions, and weak or absent in others. By and large Roy describes market participants who were entrepreneurial and a source of dynamism, not dispossessed and coerced. Expanding markets were important domestically for the evolution of small-scale industries, whose employment of family and hired labour was significantly more important as a means of livelihood than that of large-scale industries. As demand for their products - textiles, food-drink-tobacco, wood and ceramics - grew and shifted to meet new consumer preferences, small-scale industries evolved new organisational forms, technology and products, and productivity improved, albeit slowly. As the sector grew and organisational structures changed, new markets for non-family, non-apprenticed labour arose, providing expanded employment opportunities for those whose labour was underutilised elsewhere in the economy. As domestic markets expanded, so too did India's engagement in foreign markets. Exports rose dramatically at annual rates of 4 to 5 per cent between 1835 and 1913, increasing the absolute and relative income earned from international trade. By the latter date as much as one-fifth of national production was destined for foreign consumption. The spillover effects of India's expanded engagement in the 19th century global economy were evident in the rise of a modern textile industry and the evolution of modern financing institutions. An exporter of raw materials, processed agricultural goods and labour, India received in return European (primarily British) investment funds, technology and a government whose rent-seeking proclivities were limited. The end of state rent-seeking was important, for as Eric Jones in Growth Recurring: Economic Change in World History (Oxford: Clarendon Press, 1988) has noted, it has often been these stifling activities which halted and reversed economic growth throughout history. Roy examines the role of government - first that of the East India Company, later that of the Crown - in India's economy. Although conservative, unwilling to introduce revolutionary change that might threaten its control, and struggling with evolving ideas of its proper role even at home, the successive governments of British India created new institutions and infrastructures that reduced the uncertainties, transactions costs and information asymmetries that constrain economic decision-making, exchange and growth. The gradual introduction of standardised weights, measures and currency lowered costs for both producers and consumers. This directly benefited all but the shroffs whose intermediary services were no longer required, but indirectly freed literate and entrepreneurial class to move into new ventures. By the mid-19th century provincial and princely state governments assumed responsibility for expanding irrigation and road networks, facilitated the development of transport and communication systems based on railroads and telegraphs, and created a system of codified, uniform (across caste and class) and enforceable property rights. Despite its early errors in setting its land revenue demand too high and/or enforcing its collection too rigorously in some ryotwari areas and reducing incentives to increase agricultural productivity in Permanent Settlement areas during the first decades of Company rule, by the mid-19th century government agrarian policies encouraged the scientific investigation of agricultural practices, resources and commodities, and supported the dissemination of acquired knowledge through extension services. The failures of government to be more proactive, more pro-development stemmed in part from fear of generating violent response from those whose control of resources and status would be threatened, and in part from its own poverty. Government revenues were limited. Tariff policies set by parliament precluded customs duties from providing a significant source of revenues as they did elsewhere around the 19th century world. Transit and professional taxes were abolished and land revenue rates were reduced before the mid-19th century, but alternative forms of income-elastic taxes were not introduced. One of Roy's overarching concerns is to measure and explain the slow pace of India's economic growth during the colonial period. Economists often find it useful to examine the growth of an economy in terms of an aggregate production function, whereby increases in output are the result of increases in the quantity and quality of resources - human (labour), natural (land) and man-made (capital), and improvements in the way and the environment in which those resources are combined to produce goods and services (total factor productivity). Increases in population resulted in a larger labour force. Infrastructure improvements including the standardisation of weights, measures and money during the first third of the 19th century, transport and communication (principally railroads and telegraphs) during the second third, and a modern state supporting a variety of public goods institutions (e g, legal, educational, health) from the last third promoted increases in total factor productivity. The clearing of fallow and forest lands initially, and subsequently the extension of cultivation to newly irrigated lands increased the quantity of natural resources, although at the cost of loss of common property resources and redistribution of wealth. What was absent, however, were the two factors most responsible for the intensive economic growth which has improved per capita incomes and standards of living in all nations experiencing modern economic growth. First, there was little improvement in the quality of human resources. Mortality (and one assumes morbidity) rates remained high and life expectancies low until after 1921, thereby reducing the potential gains from improving skills through long work experience. Literacy rates were low, and education remained an asset of the privileged, not the masses. Education provides the means to acquire new skills, ideas and ambitions, all of which are necessary to improve the quality of human resources. Second, increases in the stock of physical capital were exceedingly small - net capital formation rates were as low as 2 to 4 per cent of national income in the first half of the 20th century. Such low rates of investment were barely sufficient to keep the capital stock per worker stable and provided no scope for the capital deepening which improves labour productivity, wages and living standards. What we've seen elsewhere around the world is a long and variable lag between the initial stirrings of change from old patterns of extensive economic growth and the eventual rapid pace of change that exemplifies intensive modern economic growth. The antecedents of Britain's rapid economic growth from the mid-18th century are found centuries earlier in the slow but accelerating pace of agrarian innovation, urbanisation and widespread literacy. The antecedents of Japan's rapid economic growth after the Meiji Restoration are also found in earlier centuries when socio-economic roles were redefined, farmers throughout the archipelago exchanged new rice varieties, cultivation techniques and related technologies through new mediums of information dissemination, and entrepreneurial enthusiasm permeated the culture. And so it was in India. The antecedents of India's modern economic growth, so unequivocally evident by the last decade of the 20th century, are rooted in the nine decades of institutional, infrastructural, and cultural change that Roy describes and explores in The Economic History of India, 1857-1947.
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