Growth of Modern Industry in India – Modern India – History DU Notes

Growth of Modern Industry

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

Nature of Modern Industrial Growth

• Aditya Mukherjee à 1914 to 1947 saw growth of indigenous industry and capitalist class.
  • Indigenous industry à geared towards import substitution of major consumer goods (sugar, textiles) and intermediate and capital goods (cement, iron and steel) à K Bagchi said that by1939, India was self-­‐ sufficient in major consumer good requirements.
  • Inward orientation of the economy à indigenous capitalists began producing for the home market à there was a link between agriculture and industry = earlier agriculture production determined by metropolitan needs; nowagricultural production oriented towards indigenous industrial demand for raw materials (Eg: raw cotton was used by Bombay industry) à this inward orientation due to (a) declining profitability of export trade (↓ demand for Indian raw materials after the depression);(b) expanding domestic market demand ßà met by domestic industry.
  • Growth of internal trade à since industrial growth was not linked to international trade but production for the domestic market à there was

an expansion in internal trade (S Subramanian has held that sugar trade tripled + cotton piece goods, cement, iron and steel trade tripled)

• Pre-­‐capitalist forms of accumulation in trade, usury and landlordism were now deployed in industry as the returns on investment were higher à (1) princely houses financed big industry; (2)mercantile capital was used to finance small scale enterprise
• Growth of indigenous industry altered composition of foreign trade à there was an(1) ↑ export of manufactured goods; (2) ↓ export of raw materials; (3) ↓ import of manufactured goods (eg: processed sugar) due to import substitution.
• R Tomlinson à there were no large capital inflows to aid the growth of modern industry à net foreign industrial investment = ₤17 million; whereas total investment in industry = ₤144 million

AK Bannerjiàreason à after World War I à (1) the capital account had a deficit (i.e. the debt repayment to Britain exceeded the net foreign investments in India); (2) there was a current account surplus (i.e. British purchases from India exceeded British exports to India) à this trading surplus led to capital accumulation in India à growth of domestic entrepreneurs who increasingly started controlling industrial enterprises (by facilitating the divestment of foreign capital)

• Emergence of entrepreneurs à (1) accounted for an overwhelming proportion of investments; (2) edged out European influence through aggressive capital investments; (3) economic sectors and regions where indigenous capital was invested witnessed faster growth than areas where European interests dominated; (4) almost 83% of capital was being held in Indian banks(capitalization of domestic banks as against foreign banks).

Reasons for Growth of Modern Industry

• Colonial View à M Drummond and Clive Deweyargue that modern industry grew due to the “colonial impetus” ßà these historians cite the Fiscal Autonomy Convention of 1919 as a “deliberatesurrender of Britain’s export market” that facilitated import substitution of consumer goods à these historians further argue that India still did not industrialize due to the ineptness of indigenous entrepreneurs.
• Tirthankar Roy and D.D Gordonà colonial policy towards Indian enterprise was shaped by thepower struggle between the India Office (representing Lancaster cloth lobby) and Government of India(supporting Bombay mill owners)à prior to 1917, the Home government prevailed over the Viceroyhowever after WWI, the power struggle was resolved in favour of the government of India à colonist historians believe this marked the transfer of sovereignty from England to India à therefore, the dividing line was not 1947 but 1917 as after this point the government facilitated industrial growth.
• Aditya Mukherjee à critique à the colonial view undermines the decisive structural break that 1947 represented in the political

• Nationalist view: economic exploitation of India continued after 1917 à Aditya Mukherjee says it “intensified” à the nature of imperial exploitation changed (from industrial interest that sought to create a captive market for British goods in India to financial interest that drained capital from colonies) àthese historians believe that indigenous industry grew despite imperial exploitation.
• By 1900 à primary form of exploitation à unilateral transfers to Britain à in terms of payment of home charges, interest on Indian debt, military expenditure et al à by 1917 this = nearly ₤100 millionàBritish issued “commission bonds” (accepting ₤ from purchasers) that were redeemable in Indian rupees (but this payment was made from Indian revenue) à as a result (a) Indian revenue was transferred to the home government and (b) Indian goods were bought from Indian revenue and taken back to UK à thus, the apparatus of the drain depended on Indian revenues à attempts to ↑ Indian revenue (as capital outflows increased) à only possible area where revenue could be increased was customs duty à to double revenue, import duties were imposed but to prevent a price-­‐disadvantage for British manufactures à countervailing excise duty was imposed (to ↑ price of indigenous manufacturing) à however, as the drain intensified à need for greater revenue led to higher custom duty ßà the strong anti-­‐imperialist movement prevent a proportionate increase in excise duty à therefore,over time the custom duties facilitated growth of indigenous industries and import substitution
• After 1900 à industrial supremacy of Britain declinedà emergence of rival industrial powers like Germany and Japan à however, the economic power of Britain linked to its capital à the steady stream of capital from India was key to this à therefore, financial powers in India were never devolved (a) to elected governments in provincial legislatures; (b) through control over the Reserve Bank
• Basudev Chatterjee à new circumstances after WWI were dictated by financial interests à nearly 60% of Indian revenue was needed for home charges, debt servicing and military expenditure àmaintaining Indian revenue was paramount à led to custom duty imposition (and ↓ British exports to India) à this provided the impetus to domestic
• K Bagchi à indigenous industry did not emerge due to colonialism à the industrial development was a product of the inner contradictions in imperial policies that placed financial interest over industrial interest à this meant that the increasing need for revenue through custom levies was sought even at the cost of contracting British exports to Indiaà in this situation the British government preferred indigenous industry to meet the domestic demand than imports from rival imperial powersà thus Indian enterprise emerged.