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The Historical Origins of Indian Poverty

Moghul India

The Moghul Empire (1526–1707), founded by Babur, dominated much of India. Key characteristics and challenges included:

  • A Muslim minority (20–25%) often imposed itself as a distinct social layer, though Akbar's reign showed religious tolerance.

  • The rigid Hindu caste system defined economic and social functions, hindering mobility and national identity.

  • Economic life centered on subsistence-based Hindu villages with customary landholding and collective taxation.

  • Primitive agricultural technology led to low yields and frequent famines, contributing to lower life expectancy than in contemporaneous Europe.

The empire's fragmentation post-1707, intensified by Aurangzeb's policies and internal strife, created a power vacuum exploited by European powers.

British India

British conquest (starting 1757, consolidated by 1849) established an efficient bureaucracy and army, transitioning to Crown rule by 1858. Governance adopted a dual approach, focused on:

  • Stability

  • Resource extraction rather than broad development.

This policy fostered a "monopolistic" environment for foreign capital and enterprises through "managing agencies," which restricted Indian entrepreneurial development and capital access.

The Economic Burden of Foreign Rule (The Drain)

A significant "drain" of resources occurred, comprising:

  • Official transfers (Home Charges, around
    \pounds40
    –
    50 million annually in 1930s)

  • Private remittances

  • Monopoly profits

Collectively, this averaged about 1.7\% of GNP between 1921–1938. This outflow critically reduced capital available for domestic investment, hampering India's economic expansion and modernization, despite a positive trade balance. This dynamic reversed post-WWII.

Agriculture under British Rule

British tax and land policies profoundly reshaped agriculture, which involved about three-quarters of the population. This led to:

  • New property rights systems (Permanent Settlement, ryotwari/Mahalwari) often weakened village communities.

  • Increased peasant indebtedness and landlessness.

  • Despite a threefold expansion in irrigation (e.g., Punjab canal colonies), overall agricultural productivity stagnated.

  • Minimal British investment in agricultural R&D or extension services, unlike Meiji Japan.

  • Per-capita agricultural output declined by about 15\% (1900-1946), making India a net grain importer by independence.

Industry under British Rule

Traditional Indian textile industries experienced deindustrialization due to competition from cheap British imports. Modern manufacturing, though established (e.g., Bombay cotton textiles 1851, Tata steel 1911), developed slowly and was characterized by:

  • Domination by foreign interests and "managing agencies."

  • Limited Indian access to capital and managerial skills.

  • Lagging industrial dynamism and competitiveness compared to other Asian economies, particularly Japan.

The Swadeshi movement and interwar tariff policies offered some protection, but often benefited foreign-owned enterprises.

Education in British India

Macaulay's education policy (1835) aimed to create a Westernized English-speaking elite to act as administrative intermediaries. This policy's impacts were:

  • Founding of universities, but neglect of mass literacy and technical training.

  • Illiteracy remained at about 88\% by 1947, further exacerbated by minimal education for women.

  • Creation of a social and intellectual chasm between the elite and the masses, hindering inclusive development.

Conclusions and Reflections

India's per-capita income rose modestly (about a quarter) from the 1870s to 1947, with population growth outpacing overall GDP expansion, leading to limited improvements in living standards. Mass poverty persisted due to a confluence of interconnected factors:

  • Initial Moghul-era socio-economic structures: Caste system, low productivity, rich ruling class/exploited peasantry.

  • Sustained colonial drain of resources: Reduced domestic investment.

  • Agricultural stagnation: Weak investment, social norms, population pressure.

  • Underdevelopment of industry: Foreign control, limited capital/skills for Indians.

  • Elite-focused education system: Neglected mass human capital development.

These factors created a structural impediment to broad-based, transformative growth, leaving a complex legacy that shaped post-independence development pathways. India's industrialization and overall growth lagged behind several other Asian peers under British rule.