india's runaway growth

8/6/2019 India's Runaway Growth

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Indias RunawayGrowth

Distortion, Disarticulation, andExclusion


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Indias Runaway Growth: Distortion, Disarticulation, and Exclusion 2

Nos. 44-46

Table of Contents

Note to Readers

Introduction

I. Economics as Mechanics

II. How Capitalism Emerged in Europe

III. Colonial Rule: Setting the Pattern

IV. India's Runaway 'Growth'

1. Missing Links

2. The External Stimulus and Its Implications

3. Private Corporate Sector-Led Growth and Exclusion

4. The Condition of the People

5. The Agrarian Impasse and Its Implications

V. Unlocking the Productive Potential of the Entire Labour Force


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Introduction

Indias economy has seen rapid growth since 2003-04. The scale of

this growth was not anticipated by many of the critics of the neo-liberal economic policies.1 In particular the following features wereunexpected:

(i) GDP growth has been sustained for five years at high levels, and iswidely predicted to continue at high rates well into the future.

(ii) Rapid growth is no longer restricted, as in the past, to the servicessector, but has extended to manufacturing.

(iii) There have been unprecedented increases in the rates of savingsand investment.

Among the proponents of the current economic policies, thesedevelopments seem to prove that India is on its way to join thedeveloped world, indeed, even become an economic superpower.

At the same time, the proponents of the present policies have been

unable to explain why, amid this extraordinary boom, the followinghave persisted:

(i) Mass malnutrition worse than that of sub-Saharan Africa prevails,with average calorie and protein consumption actually declining overthe period of liberalisation.

(ii) The growth and quality of employment have been abysmal.

(iii) Real wages are stagnant/declining in the economy as a whole.

(iv) Agricultural investment and growth are stagnating/retrogressing.

(v) There is a profound crisis of the small peasantry (highlighted bytheir suicides).


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Thus the present conjuncture poses more sharply than ever thequestion of thepatternof growth, and the meaningof development.

In this issue of Aspects, we wish to explore this question. In doing so,

we must take account of the conflicting approaches to understandingthe economy.

Notes:

1. Aspectstoo has been guilty of wasting energy questioning the levelsof GDP growth, a redherring, rather than focusing on the natureof the growth. (back)


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I. Economics as Mechanics

Faster growth is the answer to poverty

The current economic policies are based on the current orthodoxyreigning among economists worldwide. This view, called neoclassicaleconomics, argues that growth will automatically spread from thecurrent boom sectors to the backward sectors, and that all that needsto be done is to accelerate growth. The Finance Minister concluded his2007-08 Budget speech thus: our human and gender developmentindices are low not because of high growth but because growth is nothigh enough.... As Dr. Muhammad Yunus, the Nobel laureate, said,Faster growth rate is essential for faster reduction in poverty. There

is no other trick to it.

How is growth to be accelerated? The neoclassical economists claimthat Government intervention is harmful. According to them, all thatneeds to be done is to ensure that nothing interferes with theincentives for individual gain. The focus should shift, then, frommacro-economics to the micro-economic environment, the level atwhich individuals make decisions.

Thus, in the name of accelerating growth, the supporters of thisapproach demand that various subsidies, supports, regulations andrestrictions concerning the backward sectors be removed. Forexample, they demand that, in agriculture, official procurement ofcrops be ended, restrictions on private corporate procurement andcontract agriculture be removed, ceilings on land holdings be removed,new seed technology be allowed entry and patent protection bestrengthened for it, restrictions on agricultural import and export be

removed, restrictions on domestic trade in agricultural commodities beremoved, restrictions on commodities futures markets be scrapped,and so on.

For industry, they demand that labour laws providing security toworkers be relaxed, and that the remaining sectors under the public


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pulling in different directions, brings about an equilibrium, a state ofbalance, which yields the greatest sum of utility possible in the givenconditions. (What exactly utility is, and how, if at all, it is to becompared, measured or added up, was never meaningfully defined.)

In this conception, every participant in the economy is, in a sense, atrader, and the forces driving the actions of all these individuals arefundamentally similar. It portrays each individual worker, land-owner,industrialist as possessing some resource: land, capital, or labour,which it calls factors of production. The worker hires out his labour;the landowner rents out his land; the capitalist gives the use of hiscapital. Each does so for a price (the price of hiring labour is wages;the price of hiring land is rent; and the price of hiring capital is therate of interest).

That price, according to the reigning theory, is determined by supplyand demand in each market. According to the proportions in whichthese three factors land, labour, and capital are available in aparticular society, their prices automaticallyand simultaneouslysettleat some equilibrium which makes fulluse of all of them. Where capitalis scarce and labour plentiful, interest rates would be high and wages

low. In that case, it would be attractive to capitalists to employ lesscapital-intensive methods of production, that is, hire workers ratherthan buy machines. If any of the three resources lay idle, its pricewould fall till it was fully absorbed. Full employment is a centralassumptionof this theory.

However, say the neoclassicals, if prices are kept artificially low orhigh by outside intervention, all factors might not be employed fully:the gears become sticky, as it were, preventing the machine of the

economy from running smoothly. For example, if wages were preventedfrom falling to equilibrium level by minimum wage laws, or by tradeunion action, capitalists would tend to buy machines that replacelabour; and so some labour looking for work would remain unemployed.Thus unemployment, according to this theory, is the result of wagesnot being allowed to sink low enough.3


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Priceplays the key role in this theory. Price not only signals how muchto use of each factor of production, but also how much to produce ofeach commodity. Every consumer, whether worker, peasant, capitalist,or landlord, whatever his/her income, is driven by the same

considerations. Each consumer chooses what to spend on in a way thatgives him/her the greatest possible satisfaction (utility). This sendsthe required signal to the producer on what and how much to produce.When demand for a commodity grows, some consumers would be willingto pay more for it, and its price would rise. The higher price makes itprofitable for producers to produce more of the good, and itsproduction rises (with the increased supply, the price then falls, andfurther adjustments take place up and down till it settles at some

equilibrium level). Again, any interference with market forces iscounter-productive: If the price of a good is kept artificially low (egby price controls), it would deter capitalists from investing inproducing that good, and hence it would remain in short supply.

This theory assumes that producers can shift their productionseamlessly from one commodity to another. Each producer can adjustthe quantity he/she produces. Each consumer too can shift his/herpurchases from a given product to a substitute. No producer or

consumer (or group of producers/consumers) can directly influenceprices, since there is a large number of producers and consumers (if

you price your goods higher than others, you will lose customers; if youprice them lower, so will others, and you will not gain customers, butlose profits). Only when individuals increase or decrease theirproduction or purchases do they affect prices, indirectly, by changingsupply or demand. That is to say, perfect competition is assumed bythe theory.

Nor could there ever be a shortage of demand in relation toproduction. The orthodox theory assumes that all that is left afterconsumption goes directly or indirectly toward investment. So thewhole of income creates demand for what is produced.


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The beauty of this theory is that, given the different quantities ofland, capital and labour individuals possess, and their demand fordifferent commodities, the laws of supply and demand work to deliverfull employment and the maximum utility possible for consumers in the

circumstances automatically. If a change takes place in the conditions for example, if more land, or labour, or capital, becomes available the system automatically adjusts its mix of the three to absorb fullyall of them. Like a pendulum which, when pushed, rocks back and forthbut ultimately comes to rest on its own, the equilibrium, whendisturbed, gets restored automatically.

Some aspects of classical theory appeal to us because they correspondto commonsense. We all know that if something becomes scarce itsprice goes up. And we also easily accept the notion that people arefundamentally motivated by the desire for individual gain, and thatthis cannot be changed; after all, is that not what we see around usevery day?

The obvious fact is that this theory serves to justify capitalism. Itprovides a justification for profit and rent these are presented as

just the prices of hiring capital and land. (The problem of where the

capitalists capital come from is not answered; it is assumed that hewas thrifty, and saved it up.) And at any rate, whatever thedistribution of wealth, unfettered capitalism is shown to maximise theuse of resources of society; it maximises utility (whatever that means)in society; every participant in the economy makes individual, voluntarydecisions about how much to work, how to spend, and so on. Innate,immutable human nature (which, in its view, is greedy and selfish) isnot suppressed, but harnessed; no section is oppressed, but a harmonyof interests is automatically achieved. Any attempt to run counter to

this system harms the interest of the whole of society.


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Questioning this economic orthodoxy

With the onset of the Great Depression in 1929, certain economists

(the best known among whom was Keynes) began questioning parts ofthe above theory. They showed how the system does not automaticallycreate demand for the whole of production, or bring about anequilibrium in which there is full employment; rather, it spontaneouslytends to break down. When for some reason capitalists do notanticipate enough demand in relation to production, they stopinvesting, and cut production. That in turn lowers demand further,making investment even more unattractive to them. And so theeconomy sinks to a level at which there is large unemployment andunused capacity.

The insight of these economists undermined the entire structure ofneoclassical economics. For now it was clear prices dont play the magicbalancing role accorded to them in neoclassical theory. Contemporarycapitalists dont keep cutting prices of their products till they are ableto sell all they can produce, irrespective of whether or not they makea profit. Instead, they prefer to cut production. Capitalists who are

already saddled with excess capacity dont borrow money, even if theprice of capital (i.e. the rate of interest) falls to very low levels.Moreover, a fall in the price of labour (the general level of wages), farfrom making investment more attractive to capitalists, reducesaggregate demand, which makes investment less attractive, draggingthe economy down further. All this would suggest that in the presentera the underlying tendency of capitalist economies is towardsstagnation and failure to realize productive potential.

However, the situation of underdeveloped economies, like Indias, has afurther dimension. The manner in which production is organised thesocial and economic orderunder which production takes place itselfdoes not permit even an approach to full employment.4


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The Indian economy has been deregulated over the last 15 years,labour laws have been given a de factoburial, and various sectors havebeen opened up to, or handed over to, private capital. If the prevailingeconomic theory were correct, one ought to have witnessed a more

even spread of income growth and a steady rise in employment.

Instead, the gap between the growth rates of different regions hasgrown; the gap between the growth rates of different sectors of theeconomy too has grown; the rate of employment growth has slowed,resulting in massive growth of unemployment; and employment in theorganised sector, where wages and conditions meet some minimumnorms, is actually falling. Inequality in incomes and wealth has grown.And the bulk of the workforce remains in agriculture, the sector thatis stagnant or retrogressing.

Thus the currently prevailing economic theory does not help us tounderstand the current state of affairs boom on one side, anddestitution and retrogression on the other. So this orthodox theorycannot help us change it, either. In fact, such change is the mainconcern of the vast majority of people.

The view of classical political economy

Before the rise of neoclassical economics in the late 19th century, thedominant stream was what is now called classical political economy. Itsfounders, stalwarts of the capitalist system, are now cited intextbooks for those aspects of their thinking which were lateradopted by neoclassical economics. Adam Smith is cited for his beliefthat each person had a propensity to trade; that in the pursuit of

selfish gain each person would advance the common good, as if led byan invisible hand; and that State intervention could only harm thenatural harmony of social interests that arose from free competition.David Ricardo is cited for his theory showing how trade between twocountries benefited both. However, important questions explored bythem were cast aside by neoclassical economics.


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In the work of Smith and Ricardo, the participants in the economy donot appear as independent, atomistic actors, but as classes workers,landowners, capitalists characterised by their roles in relation toproduction. They tried to work out the principles by which income

created in the course of production is distributed among these threeclasses in the form of wages, rent, and profit.

The discipline of political economy developed in a period of rapidchange the era of the rise of capitalism in Europe. Thus Smith andRicardo were interested to find the driving force of development.They located it in the production of a surplusover the consumption ofthe labourer, and the accumulation of the surplus in the form of thegrowth of productive capacity.

In the course of their investigations, it emerged that the interests ofthe three classes (workers, landowners, capitalists) are in conflict:The surplus over the consumption of the labourers is distributedamong the other two classes (i.e., landowners and capitalists). Ofcourse, in their view, the capitalists share of the surplus, i.e., profit,benefits society: for it goes toward accumulation, expanding theproductive capacity unlike the landlords share. Smith termed various

sections other than labourers and capitalists as unproductive (heincluded among unproductive labourers the king, the armed forces,churchmen and lawyers). Ricardo was concerned with preventing a risein either wages or rents, which would lead to a decline in profit andthus development. Thus, in their approach, struggle between classesplayed an important role in shaping economic processes.

Marx developed aspects from Smith and Ricardos thought, whilerejecting other aspects, in creating a comprehensive and consistent

analytic system. His work marks the culmination of classical politicaleconomy. At the same time, he introduced aspects which went farbeyond its frame.5


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Historical approach

Neoclassical theory sees the economy as a snapshot in which supplyand demand in all markets simultaneously and instantly arrive atequilibrium. Each successive change is a new snapshot, a newequilibrium. By contrast, Marx viewed the economy and society as a

process. This approach allowed him to analyse development in theeconomy. It follows from this approach that in order to understandthe present, we must trace the process back that is, look at history.

In Marxs historical approach, classes in each society are stamped bytheir specific history. It is the character and strength of thecontending classes that not only shape society itself, but determinethat societys place in the world economy. Only armed with thisapproach can we understand the vast diversities of the world: howsome countries developed first, and colonised or otherwise dominatedothers; or how some countries today have developed so highly, whilethe bulk of them, containing the vast majority of the worldspopulation, remain underdeveloped and in misery.

The source of wealth

Neoclassical theory, as we saw, begins and ends with the market.Classical political economy too gave great importance to the role ofmarket forces and the operation of supply and demand; but its accountcentred on the sphere of production. Drawing on the analysis of his

predecessors, but taking it further, Marx showed that the whole ofcivilized society rests on the surpluscreated by the working people inthe course of production. The manner in which that surplus isgenerated, the level of the surplus, how it is distributed amongdifferent classes, how much of the surplus is accumulated (i.e., re-


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invested), and in what manner it is accumulated these give us the keyto understanding the economy.

Crucially, classical political economy located the source of societys

wealth in human beings interaction with nature in the form of labour.6

The wealth of a nation is measured by howproductiveits labour is, andwhat proportionof its labour force is employed in productive labour.Whereas in the currently dominant theory, the wealth of a nation ismeasured by how much capital a country has accumulated andproduction per unit of capital. By this measure, a nation grows wealthyby carrying out large investments and using the latest technology, evenif this involves keeping a large proportion of its labour forceunemployed or under-employed or engaged in work that does not yieldit a subsistence. The approach of classical political economy impliesthat such a deployment of the labour force is a suppression of thenations potential wealth.

In neoclassical theory, markets operate on their own; Stateintervention is represented only as a harmful phenomenon, preventingthe markets from clearing and arriving at equilibrium.7 And the use ofcoercion is missing in its account; indeed, it claims there is no need of

coercion in a free market; in a free market, by definition, exchangemust be of equivalents.

By contrast, Marx and his followers pointed out that underexploitative societies before capitalism, such as slave society andfeudalism, extra-economic coercion was a necessary part of surplusextraction: slaves and serfs toiled for the ruling classes of their timesbecause laws, traditions and armed force compelled them to do so. Nodoubt, in capitalist society it is principally economic coercion that

compels the worker to labour (he/she needs to labour in order to eat);but the use of organised force, and its highest form, the State, isessential to the operation of the social and economic order. If theworkers set their hands on the capitalists private property (whichafter all has been created by the workers labour), they face thearmed force of the State. (Indeed, they face it even when trying to


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reduce the extent of surplus-extraction by fighting for higher wagesand better conditions of labour for example, the use of police againststriking workers.) All this can be understood in the Marxistframework. And even the States own economic activity its taxes, its

expenditures and subsidies, its production of goods and services canbe understood with the class analysis of Marxism.

Study of the social-economic formation

Finally, neoclassical theory does not take note of the distinct socialand economic relations within different societies; it merely talks ofadvanced and backward economies. In its view, the difference

between the two is merely quantitative: the backward economy hasless capital (for example, less industry). As the backward economydevelops, it will eventually reach the condition of the advancedeconomies today. They believe that contact (in the form of free tradeand investment) between the advanced and backward economiesaccelerates the development of the latter, benefiting both in theprocess. The increasing wealth of one economy (or of a class within aneconomy) will eventually percolate to the rest; there is no relation

between the wealth of some and the poverty of the rest.

Evidently, in such a framework it is impossible to understand why somecountries took the trouble to colonise others, and why, centuries later,the gulf between the colonisers and the once-colonised persists invarious forms. By contrast, Marx uncovered the character ofdifferent stages of social development, and further looked at thespecific historical path each society has travelled. Later Marxistsextended this to understand the phenomena of colonialism and its

development into latter-day imperialism. With the Marxist approach,we can understand how social institutions like caste, race, and genderdeveloped, and in turn their role in shaping particular patterns ofeconomic development. In sum, Marxism does not make a separationbetween economics and sociology: both are aspects of study of thesocial-economic formation.


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Amid the confusing processes we are now witnessing in the Indianeconomy, the neoclassical approach cannot explain the strange patternof growth we are witnessing today. We all the more need the class,surplus-based and historical approach of political economy.

Indeed, in order to understand the historical process by which theIndian economy has developed, we need to look, by contrast, at theprocess by which capitalism developed in Europe. Though this is alengthy detour, the reason for our taking it will become evident whenwe return to look at Indian society.

Notes:

1. It was later superseded by quantum mechanics. (back)

2. See Krishna Bharadwaj, On Some Questions of Method in the Analysis of Social Change,1980. (back)

3. As wages sink, not only would capitalists hire more workers, but some workers would nolonger find wages attractive compensation for the pain of working, and would voluntarilychoose leisure over work. (back)

4. What the government terms the unemployment rate in India refers only to openunemployment. A much larger number of persons are under-employed they do not haveenough work, and whatever they occupy themselves with does not generate enough for theirsubsistence. And a large number of persons suffer disguised unemployment: they are notcounted as unemployed because they are not looking for jobs, though they would be lookingif they had any hope of getting a job. These two categories are larger than the official

figure of unemployed. The total of the three categories unemployed, underemployed, anddisguised unemployed is larger than the figure of those we can properly consideremployed. (back)

5. We are not describing here Marxs entire system, merely a few aspects relevant for thisarticle. (back)


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6. Nature is the primary source of all instruments and subjects of labour, that whichlabour works with and upon. (back)

7. For example, by enacting a minimum wage law which prevents wages from sinking lowenough to be attractive to capitalists to start hiring. (back)


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II. How Capitalism Emerged in Europe

What capitalism is, and how it emerged in Europe over the course ofseveral centuries, is a vast and complex subject. But in order to

contrast that process with what occurred in India, it is useful tomention a few aspects. (A warning: we have not presenteddevelopments in chronological order, since the aim is to describe

processes.) Some readers might find this a tedious digression, andothers might find it over-simplified. Nevertheless, our reason formentioning these aspects will become clear later, as we describe thepattern of development in India.

Class struggle within feudal society propelled social development

Capitalism in Europe was preceded by feudalism. Under feudalism, landwas overwhelmingly the main means of production. Land was owned byfeudal lords, and a large number of peasants bound to the land workedit in small farms. There was also a smaller number of artisans, whoowned their meagre means of production. The surplus product of thesepeasants and artisans, the direct producers, was extracted by law,custom and force by feudal lords. The form in which the surplus wasextracted ranged, depending on place and time, from serfdom withforced labour to the point of mere payment of tribute (in kind orcash). Secure in a stagnant society, these lords had little interest inimproving technique and expanding output, which grew, at best, veryslowly.

The basic conflict in feudal society, the conflict that propelled societyforward, was between these direct producers and the landowning

lords. In order to maintain their class power, the feudal lords tried tomaximise the rent they extracted from the peasants.1 The peasantsstruggled in various ways to end, or at least curtail, this extraction ofthe surplus, sometimes by open revolt, sometimes by fleeing the land.


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In the course of these struggles many peasants were able to relax thestranglehold of the lords, to keep some surplus for themselves, and toimprove and extend their cultivation. Additionally some artisans andmerchants became wealthy enough to buy land in their own right,

breaking the lords monopoly on land ownership. And so anotherprocess began: some producers improved their production faster thanothers, and were able to accumulate some capital within the pettymode of production itself; and over time there developed a class ofrelatively prosperous farmers alongside impoverished peasants. Thispolarisation helped lay the basis for the wage labour that would beneeded under capitalism.

Growth of merchant capital; decline of the old order

Over the centuries of feudal society, as the surplus grew to someextent, trade also grew. Around that trade grew towns wheremerchants enjoyed some political power. These merchants chafedunder certain feudal restrictions and irrationalities. Since tradesuffered under the multiple authorities and taxes of various feudallords, it was in the interest of the merchants to promote a strong

central nation-state, as developed from the 15th century.2

Yet themerchants were hardly an anti-feudal force: they fed off the decliningfeudal order and prospered under it, enjoying official monopolies andhigh margins. Merchant capital did not lead to industrial capitalthrough its owndevelopment.

Nevertheless, the money power of the towns well-to-do, the relativepolitical freedom of the towns, and the contact with ideas fromdistant lands (such as the vibrant Arab civilizations), helped germinate

far-reaching changes in religious doctrines and philosophy,mathematics and science. On the one hand religious movements, knownas the Protestant Reformation, arose against the authority of theCatholic Church (which, located in Rome, was itself a great feudallandlord throughout Europe, irksome to rising nation-states likeEngland). Even more radical was the revolution in mathematics, science


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and philosophy brought about by Francis Bacon, Copernicus, Galileo,Descartes, Leibniz and Newton: now men learnt that the universe didnot revolve around the earth, rather the earth revolved around thesun, and the laws governing its motion were discovered and propagated.

The associated change in the world-view of the intelligentsia has beentermed the Enlightenment: in the new ideology, the force of humanReason now unseated established authority, such as the Church andthe King. The State itself was now no longer seen as God-given, butthe product of Man, a social contract among men for their benefit.That implied that if the State were not functioning for their benefit,it was justified to overthrow it and replace it with a new one.

While the broad masses of people, who bore the burden of the feudalorder on their backs, had neither the education nor the opportunity tostudy all these theories, elements of such thought filtered down tothem. When the bourgeoisie seized power from the feudal class, it wasgenerally a violent affair in which the bourgeoisie needed the help ofthe masses, and so the masses were stirred up with slogans ofliberation. Thus it was that the British waged a civil war and eventuallychopped off the head of their King in 1649; and the French in 1789

began a far more profound revolution, not only decapitating theirroyalty but sweeping away feudalism much more comprehensively. TheFrench revolution declared liberty, equality, fraternity as its motto.

The creation of the working class, the rise of capitalism

However, the bourgeoisie used the struggle of the masses against thefeudal order not to put the masses in power, but in order to seize

power for themselves. With the rise of capitalism the fate of thelabouring poor was to be dispossessed, and have nothing to live by butby selling their power to labour. In England, as forward-lookinglandlords saw money to be made in farming in the new commercial way,they got around the feudal restrictions which prevented land changinghands, and ousted their numerous tenants, hiring a much smaller


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The new capitalists demanded, and got, the abolition of monopolies andprivileges in trade and industry on which merchant capital hadfattened under feudalism, and thus established free competition athome.

Primitive accumulation; the protection and acquiring of markets

Setting up capitalist enterprises would require considerableinvestments; where did the initial sums come from? The religious sectspromoted by the capitalists, such as Puritanism, preached that capitalwas accumulated by virtuous thrift (and some latter-day neoclassicaleconomists preach much the same; they call the return on capital, for

example, the reward for waiting). But in fact the initial capital wasgot largely by various types of plunder and forced labour. We havealready mentioned the measures which ousted and destituted thepeasants. Add to this the plunder of the territories overseas, theslave trade, and the use of slave labour in the colonies all justified bythe development of a racist ideology and backed by the European statepowers. Marx described one aspect of what he called the primitive (orprimary) accumulation of capital in a famous passage:

The discovery of gold and silver in America, the extirpation,enslavement and entombment in mines of the aboriginal population, thebeginning of the conquest and looting of the East Indies, the turningof Africa into a warren for the commercial hunting of blackskins,signalise the rosy dawn of the era of capitalist production. Theseidyllic proceedings are the chief moments of primitive accumulation.4

England, for example, generated huge trade deficits with its colonies

(that is, it imported more than it exported to them), and in effectgave nothing to the colonies in exchange; it could do this only becauseit exercised military and extra-economic power over them. Theseamounted to giant, unrequited transfers. Even taking only Englandsunrequited trade deficits with the West Indies and India, totalinvestment in England was raised by between two-thirds to over four-


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fifths by these transfers during 1770-1820 the very period of theIndustrial Revolution in England.5

Apart from the initial capital, capitalists also needed to be assured of

a market. While the new capitalists established free competition athome, they were happy to use State intervention against externalcompetition. Once again the nation-state came in handy to capitalism.Large imports of cotton textiles from India not only threatened themarket of English woollens manufacturers, but showed how profitablemanufacture of cotton textiles in England could be if only it couldprotect itself against imports of superior Indian cloth. And so, at thestart of the 18th century, England passed laws banning imports ofcotton goods, and even the wearing of such imported goods. Meanwhile,with the help of its military might, it opened up foreign markets. Notuntil the mid-19th century, when Britain was overwhelmingly theleading industrial power worldwide, did it dismantle protection andbegin to champion free trade till it faced new challengers by the endof the century, whereupon it returned to protectionism.

Industrial Revolution

While productive forces developed to some extent before thebourgeois seizure of power (with the 17th century Civil War inEngland, or the French Revolution beginning in 1789), that seizure ofpower preceded the really dramatic development of productive forces.

In England, (i) the creation of a large uprooted labour force (assuringcapitalists a steady supply of workers at low wages even as productiongrew); (ii) the pillage from the colonies and the grabbing of the

commons; and (iii) the protection of the domestic market and theforcible prising open of foreign markets, combined to createconditions for new technology. It was in the 18th century, andparticularly after 1760, that the famous series of innovations beganthat are now termed the Industrial Revolution: the flying shuttle thatincreased the speed of weaving and the widths of cloths, and the


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powerloom that increased that speed further; the spinning jenny,water frame and mule that successively increased the speed andquality of spinning; and the steam engine, that was first applied in acotton mill in 1785 and to a railroad in 1804. The factory system

reorganized work, with much greater division of labour, supervision ofwork and specialization of function. Where land was overwhelminglythe main means of production under feudalism, under capitalism, themain means of production became industry.

Massive expansions followed in the coal, iron and railroad industries,and thereafter in every sphere: for the first time in human history,the shackles were taken off the productive power of human societies,which henceforth became capable of the constant, rapid and up to thepresent limitless multiplication of men, goods, and services.6 Soabnormal was the rate of change as radically to transform mens ideasabout society from a more or less static conception of a world wherefrom generation to generation men were destined to remain in thestation in life to which they had been appointed at birth, and wheredeparture from tradition was contrary to nature, into a conception ofprogress as a way of life and of continual improvement as the normalstate of any healthy society.7

However, it is mistaken to credit this transformation merely to newtechnology: industrial inventions are social products in the sensethat... the questions that are posed to the inventors mind as well asthe materials for his projects are shaped by the social and economiccircumstances and needs of the time. Some innovations had to wait tobe implemented till economic and social circumstances werefavourable: for example, the smelting of iron with coal was probablydiscovered in 1620, but it was only a century later that it was put to

successful use.8 Nor was innovation mainly a matter of scientificgenius: the practical problem of smelting with coal... was solvedbefore the chemistry of metallic compounds was properly understood.The problems these men of industry and invention put to themselveswere formulated, not a priori, but out of the fullness of their ownexperience.... [T]he qualities and experience needed for successful


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synthesis and application are often those of an industrial organizerrather than of a laboratory worker.9

Innovation now became a compulsion: Each capitalist was driven to keep

increasing the productivity of labour, failing which he would beswallowed by his competitors. Capital not merely reproduces itself, butit mustdo so on an expandedscale. The purpose of production undercapitalism is to accumulate more capital. (Marx further foresaw that inthis process the large number of small firms would be reduced to ahandful by the action of the inherent laws of capitalistic productionitself, by the centralisation of capital. One capitalist always killsmany.10 But monopoly capital only emerged after an extended periodof unfettered competition.)

Capitalists of humble origin; competitive markets; technology easy

to diffuse

While the wealthy merchants financed these new enterprises, theywere not the main agents of this change: the personnel whichcaptained the new factory industry and took the initiative in itsexpansion was largely of humble origin, coming from the ranks offormer master craftsmen or yeomen farmers with a small capital whichthey increased by going into partnership with more substantialmerchants. They brought with them the rough vigour and theboundless ambition of the small rural bourgeoisie; and they were moreinclined than those who had spent their time in the counting-house orthe market to be aware of the detail of the production process, and soto be alive to the possibilities of the new technique and the successfulhandling of it. Among the new men were master clock-makers, hatters,

shoemakers and weavers, as well as farmers and tradesmen.11

At this stage of capitalisms growth, the number of capitalistenterprises was large, and each firm was relatively small, so marketswere competitive. The technological advances were still at a levelwhere they could be easily diffused, and could not be monopolized by a


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few firms; these advances were soon spread to the Continent despiteattempts by Britain to the contrary by export of British machineryand British skilled workers. Belgium, France, Germany and the U.S. alldeveloped with the help of British know-how.12

Massive shift of workforce to industry

One might imagine that, since innovations like the spinning-jenny andthe powerloom meant that the same amount of production could becarried out with far fewer workers, they would reduce the size of theworking class. No doubt, such innovations ensured the existence of anarmy of unemployed workers, so that wages did not rise to the point

where they hurt profits. But they gave so great a boost to investmentin a whole range of industries (machinery, coal, iron) within Britain thatthey resulted in a net increasein the demand for labour. Further, thedevelopment of railroads attracted enormous investment. Thus, incountries which underwent capitalist transformation, not only didindustrial output soon dwarf agricultural output in national income, butthe industrial workforce soon overtook the agricultural workforce.This shift took place first in England, where the share of the

workforce in agriculture sank to 14 per cent by 1871, compared to 55per cent employed in industry and trade.13 Although the pace of theshift was slower in other countries, a similar process was a necessarypart of capitalist development in all such countries.

With urbanization, various items of mass consumption such as clothingand footwear were now no longer made at home, but had to be boughtby workers. The sheer increase in the industrial workforce meant thatthe purchasing power of the masses multiplied. Thus industry gained a

growing internal market for such goods, limited though it was by thefact that the workers were paid such low wages. The growth ofcapitalist agriculture too was sustained by demand from the growingnumber of workers absorbed in industry.


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In order to compete with one another, capitalists required theconstant cheapening of production, one element of which was thecheapening of raw materials. Capitalism brought this about byindustrialising agriculture. The differences between the productivity

of workers in the two major sectors of the economy, industry andagriculture, tended to narrow in this process.

Establishment of capitalist social values

The change in the class structure naturally resulted in a change in thedominant social values which are always the values of the ruling class.The hand-mill gives you society with the feudal lord; the steam-millsociety with the industrial capitalist.14 As we mentioned, the social

background of many first-generation men of capital was humble, and,while they bought up titles and ranks with their new money, theyadvertised the fact that they were self-made men. The bureaucracynow was thrown open to a wider social section: the French Revolutioninstituted this by a system of national examinations. In Japan, wheretill 1868 only the samurai (military nobility) could bear arms or holdpublic office, all such privileges were abolished, all classes could beconscripted into the army, universal public education was instituted,

and education and ability were made the basis for recruitment topublic office. Hobsbawm indeed claims that The crucial achievementof the two revolutions (the Industrial Revolution and the FrenchRevolution) was thus that they opened careers to talent, or at any rateto energy, shrewdness, hard work, and greed. Not all careers, and notto the top rungs of the ladder, except perhaps in the USA. And yet,how extraordinary were the opportunities, how remote from thenineteenth century the static hierarchical ideal of the past!15

The new ideology of course helped justify the miserable condition ofthe labouring masses, for evidently in such an open system povertycould only be the result of laziness or stupidity.

However, while the capitalist class had defeated the old classes andestablished its supremacy in the economic, political and ideological


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spheres, it had created a new class, vast and growing the proletariat.At the time of the Revolution of 1649 or the Revolution of 1789 theproletariat in England and in France was not yet formed as a class, andwas not conscious of its existence as a class; workers followed the lead

of the bourgeoisie without advancing independent demands. Yet withina short time after the French Revolution, workers began organising onclass demands, both economic andpolitical. The Chartist movement of1838-48 in Britain was the first political organisation of the workingclass; in 1864 the first International Working Mens Association wasborn; and 1871 witnessed the first, albeit short-lived, state power ofthe working class, the Paris Commune. The publication of Marx andEngels Communist Manifesto in 1848, followed by Marxs Capital in

1867, provided what eventually became the dominant ideological basisfor working class organisation. Thus capitalist society was marked bythe sharp contention between two great classes, the capitalists andthe working class.

The above description is intended only to highlight a few aspects ofthe development of capitalism in order to bring out certain cruciallinkages within it (they are not listed in chronological order; indeedthey overlap):

(i) Class struggle, accumulation and class polarisation: The classstruggle of peasants helped restrict feudal extractions; this helpedthe accumulation of some capital within the petty mode of production,and this accumulation helped the development of productive forces;this development increased the polarisation of the peasantry intodifferent classes.

(ii) Ousting of peasantry, creation of working class and a mass

market: A large labour force was ousted from agriculture byagricultural capitalists; the new methods then adopted in agricultureled to an increase in agricultural productivity, generating a surplus tofeed the growing industrial workforce, and cheapening the rawmaterials needed by industry. Meanwhile the labour ousted fromagriculture was substantially absorbed in capitalist industry; this


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increased the purchasing power of the masses and created a domesticmarket for mass consumption goods.

(iii) Creation of a machine-building industry, increased productivity

displacing workers, yet growing working class: The IndustrialRevolution and the development of factory production led to thedevelopment of an industry producing machinery, coal, iron, andrailroads. Since these heavy industries, particularly the machine-building industries, developed within the same country as the lightindustries, the size of the working class as a whole continued to growdespite labour productivity increases in the light industries i.e.,workers displaced by productivity increases in light industry gotabsorbed in the heavy industries. Industry emerged as the main meansof production in the economy. It had the dominant share not only ofthe national income but also, crucially, of the workforce.

(iv) Development of the nation-state as protector and capturer ofmarkets: The development of the nation-state was spurred by thegrowing internal integration of the economy of a region. In turn, itpromoted that integration. Both rise of the nation-state and theintegration of its economy fueled the rise of national allegiance and

national sentiment. Commercial interests stood to benefit, as the newState power worked actively to protect the domestic market and seizeforeign markets.

(v) Competitive capitalism, diffusion of technology, and the rise ofmonopoly: When competitive capitalism developed in Britain,technological innovation progressed at relatively elementary level(without a specialized research and development division). Thus in thisphase it was relatively easy to diffuse technology to other firms and

other countries. Monopoly capital emerged only after and throughanextended phase of competitive capitalism.

(vi) Ascendancy of different classes and their world-views: As thefeudal order declined and new ideas germinated challengingestablished authority, the ground was prepared, at the ideological


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level, for the sharpening contradiction between the bourgeoisie andthe feudal order. Society passed generally through violent massupheavals before bourgeois hegemony could be securely established. Itis through these upheavals that feudal consciousness and feudal

allegiances declined and a bourgeois democratic consciousness wasgiven birth. Triumphant, the capitalist class stamped society with itsnew social values. However, the same social developments also led tothe formation and rise of the industrial proletariat. This class had thepotential for conscious contention with the capitalist class and thecapacity to advance itsown world-view.

The above are not separate strings. They are intertwined, interactingwith one another. They do not represent simple chains of causation,but rather the linksbetween the various developments.

This was the classical pattern established in Britain; the course wasnot identical in any of the countries that industrialised thereafter.Upto the late 19th century, the later the entrant, the greater theadvantage it had of being able to import the technology and tocomplete the process of industrialisation relatively fast; but,generally, the more it had to rely more on State intervention and

subsidies to do so. The forced pace created certain strains andweakness of bourgeois democratic consciousness in countries such asWest Germany and Japan. As the phase of competitive capitalismreceded and was transformed into monopoly capitalism, this path ofdiffusion of capitalism was more or less closed to new entrants.

India, under colonial rule, did not merely traverse a different specificpath to capitalist development: rather, while individual elements ofdevelopment here resembled the development of capitalism in the

capitalist countries, crucial linkages were damaged or broken in a waythat Indian society and its economy were stunted and deformed. Weneed to keep in mind the linkages mentioned above as we look at theprocesses imposed by colonial rule in India.


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perform this transformation before the rise of monopoly capital by the end of the 19thcentury. (back)

13. Michel Beaud, A History of Capitalism, 1500-2000, p. 97. (back)

14. Marx, Poverty of Philosophy, ch. 2. (back)

15. Hobsbawm, op. cit., p. 226. (back)


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I. Colonial Rule: Setting the Pattern of Distortion, Disarticulation,

Exclusion1

India was no exception to the laws of historical development. Beforecolonial rule, the feudal structure of Indian society was in the processof being undermined. Production for the market formed a largesegment of the economy (since land revenue was collected in cash orsold for cash); domestic and foreign trade grew, and merchant capitalflourished, with some merchants acquiring fabulous wealth; asophisticated financial system developed, geared to the needs ofcommerce; and the urban sector expanded, in which a high proportion

of the population was employed in industrial/craft production. Newelements began to appear instances of private property in land(whereby land could be bought and sold like any commodity); theemergence of cultivation performed with hired labour; the setting upof some manufacture and mining enterprises worked with hired labour.Most importantly, in response to the increasing extraction of rent,there arose stirrings, revolts and movements of the peasantry andartisans of various regions, sometimes clothed as religious movements,

sometimes led by local chieftains. These dealt blows to the MughalEmpire and accelerated its collapse.2

However, the new elements were still weak, scattered or sporadic;they were far from achieving the scale or cohesion to lead a socialrevolution. Whatever the reasons for the delay in the emergence ofsuch a revolution (for which the tenacious caste system and the self-sufficiency of the village economy must have had some share ofresponsibility), it was forestalled by the arrival of colonial rule.

Transfer of surplus from agriculture to the imperialist metropolis

The effect of colonial rule can be glimpsed in two figures. In 1700Indias share of world Gross Domestic Product was roughly the same as


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that of all of Europe both were around 23 per cent; by 1952 Indiasshare was four per cent and Europes 30 per cent. Indias share ofworld manufacturing fell from almost one-fourth in 1750 to less thanone-fiftieth in 1900.3

The new British rulers took the already excessive land revenue levelsof their predecessors as a starting point, and increased them steeplyby re-assessment and more efficient collection. Common to the twomain systems of land revenue they introduced zamindariand ryotwari was the drive to maximise revenue. Thus even in the latter in which,theoretically, the cultivator directly confronted the State parasiticclasses developed rights over the surplus, since the cultivator wasforced to borrow to make revenue payments. Since land could now bebought and sold, it became a commodity but of a peculiar type,subject to a heavy rent/revenue. This huge drain from agriculture wasalso a drain from the country itself, because the land revenue formedthe main component of British drain from India. Agriculture, thusdrained of its surplus, retrogressed: while agricultural techniqueremained virtually frozen at the levels of Mughal rule, per capitafoodgrains output declined considerably. Peasants had no surplus toinvest in maintaining productivity, let alone improving it.

In one sense colonial rule superficially resembled classical capitalistdevelopment in that it forced an increase in the share of productionfor exchange; but this condition has aptly been termed a deformedgeneralised commodity production.4 The peasant now had to pay the(hiked) revenue in cash and that too before the harvest, when he wasshort of cash; this rendered him dependent on merchants andmoneylenders. The merchants and the moneylenders had a stake inencouraging tradeable crops rather than subsistence farming, and

brought about a shift in cropping patterns. The decline of subsistencecrops and the expansion of cash crops served the process oftransferring surplus from the colony to the imperialist metropolis: (i)these crops could be exported; and (ii) India was paid for theseexports out of the taxes levied by the British rulers in India itself inother words, India in effect received nothing in return. (Some writers


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talk of export markets being opened up for India with British rule.This is similar to someone robbing one, and then paying for ones goodswith the money he has robbed.) Since the replacement of subsistencecrops with cash crops depressed the consumption of the poor

peasantry, it can be said that the surpluses were transferred out ofthe very subsistence of the poor peasantry. The spread of cash cropswent hand in hand with the spread of hunger. The late 19th centurywitnessed a series of devastating famines and epidemics that wipedout millions; even after that malnutrition persisted.

Before British rule, a portion of the land revenues used to return tothe region from which they arose, through the nobilitys purchases ofgoods from artisans; now, with the ousting of the earlier nobility andtheir replacement by the British, this source of demand for artisansgoods vanished. The British imposed internal tariffs on Indian textilesand heavy tariffs or outright bans on their import into Britain,whereas British textiles were imported into India at low tariffs. Indiawas converted from a leading manufacturer and exporter of textilesto a massive importer of them. This destroyed the section of theIndian textile industry producing fine fabrics for consumption by theearlier feudal elite. The industrial cities of the earlier period Agra,

Dacca, Surat, Patna, and others declined in economic activity andpopulation. Large-scale unemployment was thus a direct and enduringproduct of colonial rule. The share of industryin the workforce fell, asdid its share in national income. The share of agriculture in workforceand national income grew, not thanks to any development in agriculture,but because of the shrinkage of industry.

Deindustrialisation, pressure on the land, helplessness before

feudal forces

The artisans and workers once employed in the textile industry nowhad to fall back on agriculture. Under Mughal rule there was a greatabundance of land, which allowed cultivators to cultivate only the morefertile land, and to cultivate only half their land in a given year, thus


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maintaining its fertility. However, as deindustrialisation took placeunder British rule, and ruined weavers fell back on the land as the onlymeans of livelihood, land became scarce. W.W. Hunter wrote in 1893:In Bengal there was in the last century more cultivated land than

there were husbandmen to till it. The landlords at that time werecompeting for tenants.... A hundred years of British rule has reversedthe ratio.... It is [now] the husbandmen who have to compete with eachother for land.5

This destruction of indigenous industry, and the retrogression ofagriculture combined with its commercialisation, led to a new kind ofdistorted feudalism, or semi-feudalism. The peasants lack of anyalternativeto cultivation rendered them helpless before the landlords,merchants and usurers, who found it easy to increase their extractionsto the point where they took away not only the surplus, but even a partof what was needed for the peasant to subsist and to reproduce theconditions in which he/she could produce again. The lack of alternativeemployment also meant that many landless or very small peasantspreferred to tie themselves in voluntary bondage to a feudal lord withthe guarantee of some sort of subsistence. Finally, it meant that,however poor the returns from cultivation, however marginal the plot

of land, the peasant would cling onto it tenaciously as the only defenceagainst complete destitution. At the same time, those trying to ekeout a living in all sorts of petty trade proliferated, since there were nobarriers to entry in this field. Thus the share of the services sectorin employment grew, even as the income of those so-called self-employedin such petty activities remained even lower than the incomeof those involved in production.

No doubt the peasant was now linked with national and international

markets, but these did not operate to stimulate greater production.First, the large revenue demanded of the peasant left him little or nosurplus to re-invest. Secondly, taking advantage of the peasants needfor cash before sowing, the moneylender-trader was able to tie thepeasant in debt and force him to sell the crop to him at a depressedprice. Thirdly, between these traders and the international market


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intervened large wholesale merchants, banks in India, and businessesand banks in the imperialist countries. Any rise in international pricescould easily be retained by those links in the chain closer to theoutlets in the imperialist countries; even if the peasant had

information of improved prices, he lacked holding power to extractbetter terms in such a situation. (Thus any improvement in terms oftrade would not accrue largely to the peasant, but to these other linksin the chain, including foreign ones.) On the other hand, any fall ininternational prices could be passed back down the chain to thepeasant, who, as we mentioned earlier, lacked alternative employment,and was trapped in debt to the moneylender-trader, and hence had nooption but to continue to produce on worse terms.

The usurping of the forests

Before British rule, the forests were to a large extent under thecontrol of the tribals, for whom they were the source of their food,fuel, fodder, housing materials, raw materials for household needs, andmedicines, and therefore an indispensable part of their social andreligious life. Lacking ploughs and draught animals, the tribals

practised shift and burn cultivation on forest land. They also earnedincome from the sale of wood and forest products to othercommunities.

From around the 1860s, the British began to monopolise the forests then two-fifths of the countrys area by a series of measures whichclassified most forests as reserved or protected, set up a separateforest administration, placed restrictions on the tribals use of theforests and banned shifting cultivation (the typical method of

agriculture among tribals, who could not afford ploughs and cattle),and extracted large tax revenues. At the same time, the Britishplundered the forests for timber and fuel, setting in motion theprocess of deforestation which continues to date. Attempts by tribalsto reassert their rights over the forest were sparking-points fornumerous violent tribal revolts against the Raj.


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categories of land not under private ownership like barren anduncultivable land, culturable waste, land put to nonagricultural uses andforests belong to State Revenue department or Forest department.Nevertheless, the rural population, particularly the poor, depend

greatly on the goods and services available from these categories ofland. Besides, though only those resources are treated as CPRs onwhich no individual has exclusive property rights, there are systems ofcustomary rights which support traditional practices, such as gleaningor grazing of cattle in the fields after harvest, which representcommon rights on private property in certain situations.6

Introduction of modern industry displacement without re-

employment

Machine industry was introduced into India in the 1850s (in cotton andjute textiles), and grew faster from the late 19th century onward. Itcame, that is to say, after the destruction of much of native industry,but, unlike in Europe, it did not grow outof native industry. Whetherthe firms were owned by British entrepreneurs or (as in westernIndia) by Indian ones, the machinery for these firms was imported,

largely from Britain. As modern industry proceeded, it kept displacingmore workers from traditional industry, such as the surviving spinnersand handloom weavers who produced cloth for the lower end of themarket (the higher end of the market was catered to for a long timeby imports). The modern sugar and iron industries similarly oustedtraditional producers. In Europe too traditional industry in consumergoods had been ousted by machine industry, which developed throughcontinuous increases in productivity; but in India, thanks to continuousimports of machinery, employment was not created within India itself

in a machine-making industry and other heavy industries as could havemade up for the loss of employment in consumer goods industries. Thusthe net effect on employment was negative.

Given the nature of the transition to modern industry there was alarge gap between the technology embodied in the imported machines


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and the know-how existing in India; indeed, even for running themachinery the mills imported technicians from Lancashire. Since themarket was limited for many products, and the minimum size of thefirms based on imported technology was large, Indian industry did not

pass through a phase dominated by a large number of small firmscompeting for markets (with the winners growing into monopolies).Instead, a few firms between them could exercise monopoly control atthe very outset, and did not face competitive pressure to reduceproduction costs and prices. As this practice proved profitable,technological dependence was continuously reproduced.

The typical Indian industrial house did not develop through anextended period of unfettered competition through which capital wascentralised in the technological leader. Rather, it was born as amonopoly house, closely linked to government policy, contracts, andsubsidies, and with ties to feudal sections, for example for the supplyof raw materials. The background of the entrepreneurs was finance(including usury) and trade, and they excelled in financial, mercantileand speculative operations (often devoting to them as much attentionas to their industrial operations). These firms, known as managingagencies, controlled a number of firms, often in disparate industries. A

survey of Indian monopoly houses from the 1930s till the late 1970sremarked that monopoly capital in India bears a closer familyresemblance to pre-industrial monopolies than to contemporarymonopoly capitalism in the west.7

Railways and irrigation: infrastructure for imperialist penetration,

not development

In his 1853 article on The Future Results of British Rule in India,Marx anticipated that

when you have once introduced machinery into the locomotion of acountry, which possesses iron and coals, you are unable to withhold itfrom its fabrication. You cannot maintain a net of railways over an


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immense country without introducing all those industrial processesnecessary to meet the immediate and current wants of railwaylocomotion, and out of which there must grow the application ofmachinery to those branches of industry not immediately connected

with the railways. The railway system will therefore become in Indiatruly the forerunner of modern industry.... Modern industry, resultingfrom the railway system, will dissolve the hereditary divisions oflabour, upon which rest the Indian castes, those decisive impedimentsto Indian progress and Indian power.

Later, however, as he saw the actual process of colonial rule in Asia (incontrast to the history of colonial rule in North America), Marxrevised his views: in an 1881 letter he referred to the railways asuseless to the Hindus (i.e., the Indians), and one of the means forthe British to carry on a bleeding process with a vengeance!8 AndLenin later remarked that imperialism had converted the building ofrailways, which seems to be a simple, natural, democratic, cultural andcivilizing enterprise, into an instrument for oppressing a thousandmillionpeople (in the colonies and semicolonies), that is, more than halfthe population of the globe inhabiting the dependent countries.9

Indeed only a minute portion of the railway equipment wasmanufactured in India, and so the entire multiplier effect ofinvestment in the railways did not take place in India. On the contrary,the dividends on (inflated) British private investment in the railwayswere one of the major elements of the drainfrom India.

Moreover, the route alignments and rate structures of the railwaysmade it cheaper to transport goods from the ports to the interior andback rather than between points in the interior. Thus the railways

increased the relative distances between places in the hinterland,since very often the only connections they now had betweenthemselves passed through the ports. The railway revolution thusturned the third world economies inside out and enormously increasedthe intensity of dominion of advanced capitalist countries over them.10

They helped convert India into a supplier of raw materials and


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foodgrains for Europe and its colonies, and open up the countrysmarket to imported goods. The actual effect of such growth ofexchange, in a situation where productive forces and associatedpurchasing power stagnated, can be glimpsed in the export of, and

increased domestic speculation in, foodgrain in the midst of famines:

As argued sarcastically by an administrator from a native state, ...Informer famines only disjointed local areas were affected.... Nowrailways made it possible that we were starved to death as well as ourneighbours. Even an indigenous grain dealer of Calcutta was ready toconcede that ...Prices rose throughout India during this famine largelydue to operation of railways. In the previous (1878) famine there waslittle movement of crops due to good harvests in some parts. In thisfamine bad harvest is also equally spread. Spread of telegraphs,according to the grain dealer, ...helped merchants in keeping up pricesthroughout India.11

When the new rulers finally made investments in irrigation, they did soonly in select pockets, on strictly commercial considerations, and in adistorting fashion. Their purpose was to stimulate high-value,intensively cropped, commercial crops in order to increase government

revenues. In the United Provinces (U.P.), with the introduction of canalirrigation under British rule, merchants who, as we noted earlier, hadan interest in promoting crops in which they could trade extendedcultivation loans on the condition that the peasants grow sugarcane.The costs of sugarcane cultivation were heavy, and the peasantsremained trapped in debt thereafter, often losing their land in theprocess. Since sugarcane displaced the crops peasants grew for theirown consumption, the peasants now had to buy their subsistence needsfrom the market, and at higher prices (since the crops were now

scarcer). Moreover, the pattern of canal development causedenvironmental damage, rendering large lands infertile.12 Thus thedevelopment of commercialised, high-value agriculture did not resultin accumulation within agriculture, but pauperised the poorerpeasantry and drained surpluses into the hands of non-agriculturalclasses.


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The process of spread of other cash crops, such as cotton or jute, waslinked to a similar pattern of dependence on, and eventual near-bondage to, merchant-moneylenders. While physical coercion was usedto impose certain crops such as indigo and poppy on the peasants, in

most cases commercialisation was forced upon sections of peasantsthrough the process described above, that is, through seemingly freeexchange. At times the forced nature of this commercialisationshowed up in the fact that, to the extent the peasants positionimproved (say, when he actually got the benefit of better prices), hewould withdraw from the market i.e., reduce the share of outputsold.13

Stunted industrialization

Because of the pauperisation of the peasantry and the small size ofthe working class and the middle class largely as a consequence ofBritish rule the market for manufactured goods remained veryrestricted. Given the limited market and the absence ofcomprehensive tariff protection similar to that enjoyed by Britainbefore its Industrial Revolution (and for decades thereafter),

investors did not find the Indian home market attractive enough towarrant large investments. Rather, speculation, hoarding, usury, andother such unproductive financial activities (for which the colonialeconomy provided much scope) proved more attractive.

Later, tariff protection was introduced selectively by the colonialrulers when Britain was in decline as an imperialist power, and itwanted to protect its market in India against encroachment fromother imperialist powers. Thus the Indian sugar industry was

protected in order to shut out sugar imports from the Dutch colony ofJava; this led to sudden growth of the Indian sugar industry, which inturn led to a sharp rise in demand for sugar machinery from Britain.(The big bourgeoisie did not miss the significance of this experienceof government support, and in post-1947 India the ability tomanipulate governmental levers was critical to the fortunes of various


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business houses.) By the 1930s multinational corporations (a newphenomenon) were setting up plants in India to take advantage oftariff protection and penetrate the Indian market. These wereharbingers of a new phase, in which India would shift from colonial rule

by one imperialist country to multilateral dependence on severalimperialist countries.

Industrial development was stunted, and yet the size of individualfirms was relatively large in relation to the market (a scale dictated bythe technology imported from advanced capitalist Britain).Industrialisation was thus, inevitably, lumpy and spread unevenly overthe country. Till 1914, industry was concentrated in Bombay andCalcutta (apart from Tata Steel in Jamshedpur). While some industrydid come up in Ahmedabad, Delhi, Kanpur and some other places in U.P.,Coimbatore, Madurai and Madras after World War I, growth remainedregionally lopsided. The situation was also markedly dichotomous reflecting the disjunction between agriculture and industry. The port-enclave manufacturing centres, like Calcutta, were growing fast evenas the hinterland agrarian and traditional industry was deteriorating.On the other hand, regions with relatively prosperous agriculturalgrowth like Punjab had no major industrial centres.14 As late as 1948,

the three Presidency-states of Bombay, Madras and Calcuttaaccounted for 77 per cent of the percentage of industrial workers, 77per cent of industrial production, 82 per cent of engineering andelectrical goods production, and 87 per cent of chemical goodsproduction in the country. The corresponding figures for the minerallyrich states of Bihar, Orissa, and M.P. were only 10, 10, 10, and 5 percent, respectively, showing how little the natural endowments of theregion mattered in this respect.15

Distorted and arrested social development

By the late 19th century the minimum capital required to set up acompetitive industrial enterprise was substantial, and was onlyavailable to sections endowed with considerable capital of their own


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and the confidence of the financial community. The big industrialentrepreneurs were almost exclusivelydrawn from a tiny handful ofcommercial castes/communities the Gujarati banias, the Marwaris,the Parsis, the Khattris, the Aggarwals, and the Chettiars prominent

among them. (Among the Muslims, too, business was dominated bycertain trading castes, but they were weaker, and flourished onlyafter the formation of Pakistan.) The big business communities hadtheir roots, and continuing activities, in finance and trade rather thanproduction, and they maintained this separation even after turning toindustry. They refrained from carrying out any technologicalinnovation; the more enterprising among them applied their minds tochoosing which technology to import.

The education system the British set up in India cannot be criticisedfor not educating the masses, as it was not intended to do so; it wasdesigned to create a class of Indians who would mediate between thecolonial rulers and the ruled, as well as facilitate and reduce theexpenses of their rule in India. (Macaulay, then a member of theGovernor-Generals council, made this clear in the famous Minute heprepared for Bentinck in 1835: I feel with them that it is impossiblefor us, with our limited means, to attempt to educate the body of the

people. We must at present do our best to form a class who may beinterpreters between us and the millions whom we govern, a class ofpersons Indian in blood and colour, but English in tastes, in opinions, inmorals and in intellect.) No doubt, as a by-product of this educationsystem, some independent-minded elements got access to Europeanstreams of scientific and analytic thought, but this was rare. Theuniversity system brought into being a class of professionals and upperwhite-collar staff which served the needs of colonial rule. Moreover,

not only did the entire urban elite and a section of the middle classeslearn English, but the Western education system, combined with thefact of British rule, established the intellectual and culturaldomination of Europe over India. The urban elite and broader sectionsunder their influence developed a mentality of subservience to allthings European, an overpowering taste for European products, a sense


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of shame about their Indianness and a yearning for approval by thewhite man.

Secondary education too was shaped by the goal of entering tertiary

education, reinforcing the status of English throughout of theeducational system and consigning instruction in the native tongue to asecond-class status. The real barrier to the fuller development of thenumerous Indian languages was not any dominant Indian language, butthe supremacy of English, just as the barrier to the development ofthe economic life of the various national regions was the imperialist-directed pattern of development.

All sorts of reactionary and obscurantist thought, rather than

diminishing, spread under the British umbrella. After the revolt of1857, it was a matter of conscious British policy to ensure communaldivision: in the words of the 1879 Army Commission, Next to thegrand counterpoise of a sufficient European force comes thecounterpoise of natives against natives.16 Unlike in the capitalistcountries, the system of electoral politics was not introduced througha long process of democratic and working-class struggle; on thecontrary it was introduced by the British rulers as part of their effort

to associate elite sections with their rule, and to set competingcommunal elites on one another. However, the impact of thesemanoeuvres was not restricted to elite sections, but had terriblerepercussions among the masses. It was in the late 19th century thatcommunal mobilisations and riots among Hindus and Muslims beganmaking a regular appearance, finding their grim climax in the greatmassacres of Partition.

The caste system, that decisive impediment to Indian progress and

Indian power, far from being dissolved by the railways and theappearance of modern industry under British rule, survived in asomewhat modified but hardly weakened form. British administrationcreated certain limited opportunities for members of castes lower inthe hierarchy, resulting in a scramble among the various castes forthese favours. The earlier Brahmin dominance in government posts and


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social status was challenged to some extent by certain non-Brahmincommunities with growing economic and social clout, and important non-Brahmin movements arose in the south. However, while there was apartial reordering of castes within the hierarchy, the institution of

hierarchy itself was not threatened, and remained particularlyoppressive to those at the bottom of the pile. The British resolutelyabstained from interfering with the social prohibitions and economicexclusions suffered by the oppressed castes; indeed, as Ambedkarobserved in an address to the All-India Depressed Classes Congress,August 1930:

Before the British you were in the loathsome condition due to youruntouchability. Has the British Government done anything to remove

your untouchability? Before the British you could not draw water fromthe village. Has the British Government secured you the right to thewell? Before the British you could not enter the temple. Can you enternow? Before the British you were denied entry into the police force.Does the British Government admit you in the force? Before theBritish you were not allowed to serve in the military. Is that careernow open to you? Gentlemen, to none of these questions you can give anaffirmative answer. Those who have held so much power over the

country for such a long time must have done some good. But there iscertainly no fundamental improvement in your position. So far as youare concerned, the British Government has accepted the arrangementsas it found them and has preserved them faithfully in the manner ofthe Chinese tailor who, when given an old coat as a pattern, producedwith pride an exact replica, rents, patches and all. Your wrongs haveremained as open sores and they have not been righted....17

The abundance of land before British rule allowed some caste mobility,

yet even under those conditions certain castes were kept landless;with the destruction of native industry and the enormous pressure onthe land under colonial rule, there was even less scope for escape fromcaste oppression. Only an agrarian revolution, with all its political andsocial implications, would have created scope for a profound churning


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of the caste order; and such a revolution would have upturned thenative classes on whom British rule itself was based.

Distinct class structure

Thus British rule created a class structure in India distinct from thatof capitalist Britain. Parasitic classes landlords, traders and usurers maintained sway over the rural areas. There they found ample scopefor fattening on parasitic extractions in landownership, usury andtrading rather than on expanding productive forces. Their control overmultiple markets land, labour, credit, output allowed them toincrease extractions beyond the limits possible in any single market(for example, an indebted peasant would be compelled not only to pay

interest but to sell his produce or his labour power cheaper to hiscreditor). The vast majority of producers fell in three groups:landless, very small, and small, who were not in a position to takeadvantage of market stimuli to accumulate. Though the middle and richpeasants were able to respond to market stimuli, they were unable toconcentrate land in their hands, as small producers clung to theirholdings, however uneconomic, as their only defence againstdestitution in conditions where employment in industry was stagnant.18

The big bourgeoisie, composed of big industrial and trading concernswith close ties to foreign capital and feudal forces, prospered underBritish rule. By contrast, a section of small industrialists grew innumbers, generally restricted to businesses such as cotton gins andpresses, rice and oil mills, traditional sugar manufacture, and smallpowerloom or handloom factories. Some enterprising elements of thisclass ventured into pharmaceuticals, chemicals, and small engineeringworkshops. Lacking access to finance, linked too to feudal sections,

denied any support from the colonial government, too weak to competewith the monopoly power of the big bourgeoisie, and most importantlyhobbled by the meagre markets of poverty-stricken India, they wereunable to unleash the necessary ever-expanding circuit of accumulationin industry.


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Colonial rule in India also led to the development of an industrialproletariat associated with modern industry, thus creating the basis,as in Europe, for political organisation with the ultimate aim of theabolition of private property. However, far from emerging as the great

majority of society, the proletariat in India remained a small island in asea of peasants and petty self-employed. Several obstacles stood inthe way of its developing class consciousness. As industrial employmentstagnated and capitalist concentration of landholding failed tomaterialise, the workers retained strong ties to their villages and tothe land; these ties proved useful for the industrial employers, as theycould escape paying the worker a level of wages that would provide forsecurity after retirement, or for the upkeep of the workers family

(which would often remain in the village). This set-up allowed for theexploitation of womens labour in reproduction, even more than incapitalist society.19 Further, workers tended to retreat to theirvillages at the times of strikes and mill closures, thus weakening thefight. Finally, the workers ties to the village imbued him with feudalconsciousness, including subservience to social superiors and fatalism.

The recruitment of workers, especially of the most unskilled manuallabour, often took place in gangs and through contractors with feudal

ties, which also helped keep them in line. (Large numbers of Indianworkers were despatched as indentured labour to Assam, Ceylon, Fiji,South Africa, the West Indies, and Iraq, often in conditions of semi-slavery.) A major division emerged between the organised sectorworkers (which corresponded roughly to the unionised) and theunorganised sector; this division was greatly strengthened in the post-1947 period, and the second section was effectively kept beyond thepale of union organisation. In this environment, it is not surprising that

reactionary influences, both caste and communal, retained their gripon workers to a large extent.

Even after the end of British rule, the Indian big bourgeoisie did notexercise exclusive hegemony over the Indian State. First, they servedthe interests of imperialism in the new configuration: that is, no longerthe interests of a single colonial power but of the multilateral


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Indias Runaway Growth: Distortio

india's runaway growth

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