Continuous Assessment

DSE: Economic History of India

How Colonial India Made Modern Britain

Under the guidance of Bal Krishan Sir

Department of Economics

Submitted by:
Sehaz Nagpal
5803
Semester 5
Overview:
Aditya Mukherjee, a respected Indian economic historian, challenges the traditional view that European
colonialism had little impact on the modernisation of the colonising nations. In his work, Empire: How
Colonial India Made Modern Britain, Mukherjee presents a strong argument that Britain’s industrial
growth, rise in global power, and economic progress were closely tied to its colonial relationship with
India. He explores how this connection shaped Britain’s economic development from as early as the
15th century, paving the way for British industrialisation and a higher standard of living in Europe.
Mukherjee contends that British dominance in global trade and finance was not solely due to internal
advancements but was deeply intertwined with the resources, wealth, and labour extracted from
colonies like India. He explains how this colonial relationship not only fueled British supremacy during
the industrial age but also helped Britain sustain its financial power well into the 20th century, even as
it faced crises and competition from other nations. Mukherjee’s work sheds light on colonialism’s role
in shaping modern Britain and revisits the impact of this imperial link on both nations’ economic
histories.

A. Introduction
The impact of colonialism on global economies has often been examined in terms of its effect on the
colonies, but less attention has been given to how it benefited the colonising nations. Aditya Mukherjee
highlights this overlooked aspect by examining Britain’s relationship with India, showing how
colonialism played a critical role in Britain’s economic rise. He draws on historical debates, including
Karl Marx’s early views on colonialism in India, where Marx identified both destructive and potentially
“regenerative” aspects of British rule. Initially, Marx thought colonialism might open the path for
capitalist development in colonies by breaking down pre-colonial structures. However, both Marx and
early Indian nationalists later realised that colonialism hindered true capitalist growth in India, and
many Indian thinkers like Dadabhai Naoroji and R.C. Dutt developed sophisticated critiques of
colonialism decades before Western critics like Lenin and Rosa Luxemburg.
Mukherjee notes that this anti-colonial perspective built a foundation for understanding colonial
exploitation. Despite these critiques, colonial apologists continue to argue that British rule benefited
India by introducing modern infrastructure and fostering growth, suggesting that colonialism laid the
groundwork for post-independence economic progress. Mukherjee counters this narrative, asserting that
colonial policies actually drained wealth from India to Britain, a process Marx termed the “bleeding
process.” The transfer of resources from colony to coloniser, termed the “drain” or “tribute” by Indian
nationalists, was central to Britain’s early accumulation of capital, fuelling industrial growth and
financial dominance.
Mukherjee’s argument extends beyond the initial phases of British industrialisation. While the transfer
of resources—through exploitation of labour, extraction of raw materials, and manipulation of trade
policies—was crucial to Britain’s industrial rise, it continued into the 20th century, evolving with the
nature of global capitalism. In the early stages, colonial surplus was extracted through forced labour
and the export of raw materials, which were used to support Britain’s industrial needs. As Britain’s
industrial economy matured, the mechanisms of exploitation adapted. Mukherjee discusses how
“unequal exchange” became a means of transferring wealth through seemingly free trade, where less
productive economies like India were disadvantaged in trade with highly industrialised nations like
Britain.
Mukherjee also challenges the idea that Europe’s rise was due to inherent qualities or unique
advantages, a view that often minimises the economic role of colonial exploitation. Advocates of this
Eurocentric perspective argue that Europe had a developmental lead long before the industrial
revolution. However, Mukherjee points out that pre-industrial societies in Asia, particularly in India and

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China, were globally influential well into the 18th century. India, for instance, dominated global textile
markets, with Europe heavily dependent on Indian goods. This dependency underscores Mukherjee’s
argument that Europe’s industrial and economic ascent was not solely a result of intrinsic capabilities
but was closely tied to exploiting colonial economies.
Mukherjee identifies surplus appropriation as the core of colonialism, which was not merely a civilising
mission or “the White Man’s Burden” but a deliberate strategy for extracting resources and wealth. He
explains that surplus extraction took diverse forms, depending on the era and the specific demands of
Britain’s economy. In the pre-industrial era, labour was the key resource, and colonialism relied on
forced labour systems, such as slavery and indenture, to generate surplus for the colonial powers. During
Britain’s industrial expansion, capital became the central factor, and Britain benefited from India’s
export surplus, where commodities were exported from India without equivalent payments, creating a
drain of wealth.
Mukherjee highlights that even in today’s “knowledge economy,” colonial legacy endures in the form
of “brain drain,” where skilled professionals from former colonies migrate to advanced economies. This
trend is particularly evident in India, where decades of investment in education have led to a substantial
outflow of talent to Western countries. Mukherjee argues that this brain drain is a modern continuation
of surplus appropriation, with advanced economies benefiting from the skills and expertise.

B. Europe and Asia: Broad Comparative Data

In this section, Aditya Mukherjee highlights how historical data reveal the stark economic shifts caused
by colonialism, particularly by examining GDP distribution between Europe and Asia over time.
Drawing on Angus Maddison’s extensive research, Mukherjee notes how, prior to colonial influence,
Asia (excluding Japan) was a dominant global economic force, producing far more than Western Europe
in 1500. However, as European colonialism expanded, Asian economies like India and China saw their
global economic share decline dramatically. This downturn accelerated as more regions in Asia fell
under colonial control, and by 1913, Asia’s contribution to global GDP was less than Western Europe’s.
Mukherjee argues that these figures challenge the narrative of Europe’s intrinsic economic superiority,
suggesting instead that colonial exploitation directly fuelled Europe’s growth at the expense of Asian
economies.
For instance, until the early 19th century, India and China together produced more than twice the GDP
of Western Europe. India, in particular, held an extraordinary position, accounting for approximately
30% of the world’s GDP during the first millennium and continuing to be a major economic powerhouse
well into the early 18th century. At that time, India’s economic output was greater than all of Western
Europe and vastly surpassed that of Britain. However, colonial rule reversed this economic dominance,
reducing India’s global share to 4.2% by 1950. Mukherjee contrasts this reality with arguments made
by proponents of colonialism, such as historian Tirthankar Roy, who claim that British rule brought
economic growth to India. Mukherjee counters that whatever growth occurred was minimal and did not
offset the massive wealth drain that occurred under colonial control.
The comparative data between colonial and post-colonial India further illustrate this point. During
colonial rule, India’s per capita income remained stagnant or grew very slowly, while European
economies, as well as those of the US and Japan, surged ahead. Between 1820 and 1913, India’s per
capita income growth was negligible, and in the final decades of colonialism, between 1913 and 1950,
it actually declined at an annual rate of -0.22%. In contrast, after independence, India’s economic
performance improved significantly. In the initial decades after independence, per capita income grew
by 1.4% annually, which was three times faster than during the best phase under British rule. By the
late 20th and early 21st centuries, this growth accelerated further, with per capita income increasing by

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3.01% annually from 1973 to 2001 and reaching remarkable growth rates of over 8% in some years by
the mid-2000s.
Mukherjee argues that these statistics reflect a fundamental structural change, challenging the idea that
colonialism laid the foundation for India’s later economic development. Instead, he contends that India’s
post-independence growth was driven by deliberate policies designed to break free from colonial
constraints. This was achieved through an ambitious multi-pronged strategy that aimed to foster
industrialisation, capital formation, and economic self-sufficiency, all while upholding democratic
principles and civil liberties. The growth in agriculture, industry, and capital formation post-
independence marked a distinct break from the stagnant colonial economy and was the result of targeted
economic planning, not a continuation of any “positive” legacy from British rule.

C. British Conquest of India

The historical relationship between India and Britain was marked by extensive flows of commodities,
labor, and capital, shaping both economies profoundly. Britain’s interest in India began as a commercial
venture in the early 18th century, centered on trading Indian textiles and silk. These goods, primarily
funded through silver and gold obtained from Latin America, fueled European desires, especially as
Indian textiles became pivotal in the Atlantic slave trade, with slaves receiving these textiles as
compensation. India’s significant textile industry thrived globally until Britain’s eventual colonial
conquest altered this dynamic.
The mid-18th century marked a drastic shift with the British victory at the Battle of Plassey in 1757,
establishing control over Indian territories. From this point, British methods of trade became
exploitative: revenue from Indian territories was used to finance Indian exports to Britain. This
arrangement eliminated the need for bullion imports into India and marked the start of an unbalanced
trade relationship. Through this system, Britain imposed a “drain” on India, extracting wealth with little
to no compensation for the Indian economy. Over time, unrequited exports from India provided
substantial capital, sustaining British industrial growth while severely impacting India’s economy.
As Britain industrialized in the early 19th century, it redirected India’s role in its economy. Britain aimed
to suppress Indian textile exports to protect its domestic industry, even as it sought new ways to finance
its own manufacturing sector. India was transformed into a supplier of raw materials for British industry
and a consumer of British goods. To achieve this, the British forced the Indian economy to adapt,
increasing exports of opium to China. This strategy allowed Britain to trade Indian opium for Chinese
tea and silk, which Britain could then sell globally, providing an indirect way to sustain the “tribute”
from India.
By the latter half of the 19th century, Britain’s reliance on Indian exports expanded. The development
of global trade networks and infrastructure—such as the Suez Canal and railways—allowed Britain to
facilitate multilateral trade. India exported raw materials to countries like Japan and the U.S., generating
export surpluses, while Britain utilized this surplus to offset its balance of payments deficits in Europe
and the Americas. During this period, India’s capital outflows represented a large portion of British
capital formation, strengthening Britain’s global economic standing.
Britain’s export strategy also reshaped the Indian economy through policies that deindustrialized local
industries, particularly textiles. By systematically pushing Indian textiles out of both domestic and
international markets, British policies led to widespread unemployment and economic decline in India.
British cotton exports to India rose dramatically, capturing a significant portion of the Indian market by
the late 19th century and further contributing to India’s deindustrialization.
As British industrial needs evolved, so did India’s colonial role. India not only funded Britain’s global
investments through wealth extracted as “tribute” but also contributed labor. Following the abolition of

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slavery in 1834, Britain began transporting large numbers of impoverished Indian laborers to its other
colonies under indenture contracts. These laborers worked in challenging conditions across the British
Empire, from the Caribbean to Mauritius, South Africa, and Southeast Asia.

D. British Colonialism and India: The Last Phase

This section explores the complex economic dynamics and colonial policies that shaped India’s
economy in the first half of the 20th century, focusing on the intensification rather than decolonization
of British exploitation during this period. Contrary to the narrative of Britain gradually ceding ground
to Indian industry, the author argues that Britain strategically shifted from an industrial to a financial
form of exploitation. As British manufacturing weakened on the world stage and Britain faced financial
crises, including debt to the United States after World War I, it leveraged India’s economy to stabilize
itself.
India’s role as a supplier of capital became even more crucial for Britain, manifesting through increased
financial demands. Key elements included "Home Charges," military expenses, and public debt
payments, which surged from £2 million in 1913-14 to £32 million by 1924-25, reflecting Britain's
dependence on Indian revenues. To maintain these outflows, customs duties replaced land revenue as
the principal source of income, with import duties on British goods rising dramatically. This inadvertent
protectionism benefited India’s textile industry, which had been previously undermined by British
imports.
Britain’s financial manipulation extended to severe deflationary measures, causing widespread
economic hardship, especially during the Great Depression. To offset falling exports, the government
encouraged massive gold exports, which sustained remittance flows and bolstered British currency. The
exploitation reached a peak during World War II, with Britain borrowing around Rs 17,000 million from
India without a clear repayment plan. The resulting currency inflation, combined with severe shortages,
contributed to widespread suffering, most notably during the Bengal famine.
In this view, Britain’s imperial economic policy aimed solely at sustaining its own prosperity, with India
continuously bearing the cost. Britain’s financial extraction ultimately burdened India, culminating in
Tagore’s 1941 lament about the legacy of "mud and filth" left by British rule, a metaphor for the stark
economic and social impoverishment left behind after centuries of colonial exploitation.

Conclusion:
Aditya Mukherjee's extensive analysis in *Empire: How Colonial India Made Modern Britain* provides
a compelling narrative that redefines our understanding of colonialism’s economic impact. His work
dismantles the Eurocentric notion of Europe’s inherent developmental advantage, illustrating instead
how Britain’s rise to global prominence was deeply intertwined with the exploitation of India. From the
systematic extraction of wealth through the “drain” and forced trade to the suppression of India’s
thriving industries, Mukherjee highlights how colonial policies enriched Britain at the expense of Indian
prosperity.
Mukherjee traces this exploitation across centuries, revealing its evolution from the appropriation of
raw materials and labour to modern forms of surplus extraction, such as the “brain drain.” He
demonstrates that Britain’s industrial revolution, financial dominance, and sustained global power were
made possible not solely by internal innovation but by the resources siphoned from India. Moreover,
Mukherjee’s critique of colonial apologists challenges the narrative that British rule benefited India.
Instead, he presents data showing India’s economic stagnation under colonialism, contrasting it with
the accelerated growth achieved post-independence through targeted policies.

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This work not only reshapes historical discourse but also serves as a poignant reminder of colonialism’s
enduring legacy. Mukherjee’s arguments compel us to rethink the foundations of modern economic
power and acknowledge the cost borne by colonised nations. By highlighting the global inequities
perpetuated by colonial systems, Mukherjee’s insights resonate beyond academic debates, urging
societies to critically examine the lasting impacts of imperialism. His narrative is a testament to the
resilience of post-colonial nations like India, which, despite centuries of exploitation, have charted their
own path toward growth and self-sufficiency.