How the British impoverished India
analysis
Updated on Oct 30, 2018 01:02 PM IST
When the Crown took over from the Company, from 1861 a clever system was >developed under which all of Indias financial gold and forex earnings
from its fast-rising commodity export surplus with the world, was
intercepted and appropriated by Britain
By Utsa Patnaik
How exactly did the British manage to diddle us and drain our wealth ?
was the question that Basudev Chatterjee (later editor of a volume in
the Towards Freedom project ) had posed to me 50 years ago when we were >fellow-students abroad. After decades of research I find that using
Indias commodity export surplus as the measure and applying an interest
rate of 5%, the total drain from 1765 to 1938, compounded up to 2016,
comes to £9.2 trillion; since $4.86 exchanged for £1 those days, this
sum equals about $45 trillion.
The exact mechanism of drain, or transfers from India to Britain was
quite simple. The key factor was Britains control over our taxation
revenues combined with control over Indias financial gold and forex
earnings from its booming commodity export surplus with the world.
Simply put, Britain used locally raised rupee tax revenues to pay for
its net import of goods, a highly abnormal use of budgetary funds not
seen in any sovereign country. The East India Company from 1765 onwards >allocated every year up to one-third of Indian budgetary revenues net of >collection costs, to buy a large volume of goods for direct import into >Britain, far in excess of that countrys own needs. Since tropical goods
were highly prized in other cold temperate countries which could never >produce them, in effect these free goods represented international
purchasing power for Britain which kept a part for its own use and >re-exported the balance to other countries in Europe and North America >against import of food grains, iron and other goods in which it was >deficient. The British historians Phyllis Deane and WA Cole presented an >incorrect estimate of Britains 18th-19th century trade volume, by
leaving out re-exports completely. I found that by 1800 Britains total
trade was 62% higher than their estimate, on applying the correct
definition of trade including re-exports, that is used by the United
Nations and by all other international organisations.
When the Crown took over from the Company, from 1861 a clever system was >developed under which all of Indias financial gold and forex earnings
from its fast-rising commodity export surplus with the world, was
intercepted and appropriated by Britain. As before up to a third of
Indias rising budgetary revenues was not spent domestically but was set >aside as expenditure abroad. The Secretary of State for India in
Council, based in London, invited foreign importers to deposit with him
the payment (in gold, sterling and their own currencies) for their net >imports from India, and these gold and forex payments disappeared into
the yawning maw of the SoSs account in the Bank of England. Against
Indias net foreign earnings he issued bills, termed Council bills
(CBs), to an equivalent rupee value. The rate (between gold-linked
sterling and silver rupee) at which the bills were issued, was carefully >adjusted to the last farthing, so that foreigners would never find it
more profitable to ship financial gold as payment directly to Indians, >compared to using the CB route. Foreign importers sent the CBs by
post or by telegraph to the export houses in India, that via the
exchange banks were paid out of the budgeted provision of sums under >expenditure abroad, and the exporters in turn paid the producers
(peasants and artisans) from whom they sourced the goods.
The United Nations (1962) historical data for 1900 to 1960, show that
for three decades up to 1928 (and very likely earlier too) India posted
the second highest merchandise export surplus in the world, with USA in
the first position. Not only were Indians deprived of every bit of the >enormous international purchasing power they had earned over 175 years,
even its rupee equivalent was not issued to them since not even the
colonial government was credited with any part of Indias net gold and
forex earnings against which it could issue rupees. The sleight-of-hand >employed, namely paying producers out of their own taxes, made Indias >export surplus unrequited and constituted a tax-financed drain to the >metropolis, as had been correctly pointed out by those highly insightful >classical writers, Dadabhai Naoroji and RCDutt.
Surplus budgets to effect such heavy tax-financed transfers had a severe >employmentreducing and income-deflating effect: mass consumption was >squeezed in order to release export goods. Per capita annual foodgrains >absorption in British India declined from 210 kg. during the period
1904-09, to 157 kg. during 1937-41, and to only 137 kg by 1946. If even
a part of its enormous foreign earnings had been credited to it and not >entirely siphoned off, India could have imported modern technology to
build up an industrial structure as Japan was doing. Instead the masses >suffered severe nutritional decline and independent India inherited a >festering problem of unemployment and poverty.
Utsa Patnaik is Professor Emeritus, Centre for Economic Studies and
Planning, Jawaharlal Nehru University
Isn't it more historically correct to say the mughal empire was
impoverished? That empire which the brits came to control was the most prosperous in the history of s. asia?
There was then, and not until the mid 20cetury did a political country
named "india" exist.
In fact nothing close in size in s. asia to the current country could be called "india". Nor was it called by anyone before the 17 century when the brits began to use the greek name derived from the indus river.
The several hindu headed local small city states before the mughal empire never rose to the power and size and prosperity of it. Then the brits and others came.Ā¬
https://www.hindustantimes.com/analysis/how-the-british-impoverished-india/story-zidAo8pKyIrmO7UnBkcjfJ.html
How the British impoverished India
analysis
Updated on Oct 30, 2018 01:02 PM IST
When the Crown took over from the Company, from 1861 a clever system was
developed under which all of Indiaās financial gold and forex earnings >>from its fast-rising commodity export surplus with the world, was
intercepted and appropriated by Britain
By Utsa Patnaik
āHow exactly did the British manage to diddle us and drain our wealthā ? >> was the question that Basudev Chatterjee (later editor of a volume in
the Towards Freedom project ) had posed to me 50 years ago when we were
fellow-students abroad. After decades of research I find that using
Indiaās commodity export surplus as the measure and applying an interest
rate of 5%, the total drain from 1765 to 1938, compounded up to 2016,
comes to Ā£9.2 trillion; since $4.86 exchanged for Ā£1 those days, this >> sum equals about $45 trillion.
The exact mechanism of drain, or transfers from India to Britain was
quite simple. The key factor was Britainās control over our taxation
revenues combined with control over Indiaās financial gold and forex
earnings from its booming commodity export surplus with the world.
Simply put, Britain used locally raised rupee tax revenues to pay for
its net import of goods, a highly abnormal use of budgetary funds not
seen in any sovereign country. The East India Company from 1765 onwards
allocated every year up to one-third of Indian budgetary revenues net of
collection costs, to buy a large volume of goods for direct import into
Britain, far in excess of that countryās own needs. Since tropical goods
were highly prized in other cold temperate countries which could never
produce them, in effect these free goods represented international
purchasing power for Britain which kept a part for its own use and
re-exported the balance to other countries in Europe and North America
against import of food grains, iron and other goods in which it was
deficient. The British historians Phyllis Deane and WA Cole presented an
incorrect estimate of Britainās 18th-19th century trade volume, by
leaving out re-exports completely. I found that by 1800 Britainās total
trade was 62% higher than their estimate, on applying the correct
definition of trade including re-exports, that is used by the United
Nations and by all other international organisations.
When the Crown took over from the Company, from 1861 a clever system was
developed under which all of Indiaās financial gold and forex earnings >>from its fast-rising commodity export surplus with the world, was
intercepted and appropriated by Britain. As before up to a third of
Indiaās rising budgetary revenues was not spent domestically but was set
aside as āexpenditure abroadā. The Secretary of State for India in
Council, based in London, invited foreign importers to deposit with him
the payment (in gold, sterling and their own currencies) for their net
imports from India, and these gold and forex payments disappeared into
the yawning maw of the SoSās account in the Bank of England. Against
Indiaās net foreign earnings he issued bills, termed Council bills
(CBs), to an equivalent rupee value. The rate (between gold-linked
sterling and silver rupee) at which the bills were issued, was carefully
adjusted to the last farthing, so that foreigners would never find it
more profitable to ship financial gold as payment directly to Indians,
compared to using the CB route. Foreign importers sent the CBs by
post or by telegraph to the export houses in India, that via the
exchange banks were paid out of the budgeted provision of sums under
āexpenditure abroadā, and the exporters in turn paid the producers
(peasants and artisans) from whom they sourced the goods.
The United Nations (1962) historical data for 1900 to 1960, show that
for three decades up to 1928 (and very likely earlier too) India posted
the second highest merchandise export surplus in the world, with USA in
the first position. Not only were Indians deprived of every bit of the
enormous international purchasing power they had earned over 175 years,
even its rupee equivalent was not issued to them since not even the
colonial government was credited with any part of Indiaās net gold and
forex earnings against which it could issue rupees. The sleight-of-hand
employed, namely āpayingā producers out of their own taxes, made Indiaās >> export surplus unrequited and constituted a tax-financed drain to the
metropolis, as had been correctly pointed out by those highly insightful
classical writers, Dadabhai Naoroji and RCDutt.
Surplus budgets to effect such heavy tax-financed transfers had a severe
employmentāreducing and income-deflating effect: mass consumption was
squeezed in order to release export goods. Per capita annual foodgrains
absorption in British India declined from 210 kg. during the period
1904-09, to 157 kg. during 1937-41, and to only 137 kg by 1946. If even
a part of its enormous foreign earnings had been credited to it and not
entirely siphoned off, India could have imported modern technology to
build up an industrial structure as Japan was doing. Instead the masses
suffered severe nutritional decline and independent India inherited a
festering problem of unemployment and poverty.
Utsa Patnaik is Professor Emeritus, Centre for Economic Studies and
Planning, Jawaharlal Nehru University
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