Industrial Development in India during the British Rule

By way of substantiating the thesis that the large scale

industries and their promotion have proved detrimental to
environment, a close look at the history and evolution of
industrialization is a must. But such a historical account of
industrialization is too vast a field for the researcher to look
into. It is therefore necessary to limit this enquiry
to the area of industrialization in India in general and to
industrialization in Kerala in particular.
What were the kinds of industries that were flourishing in
India before the advent of the British? What was the impact of
the industrial policy of the British on the traditional
industries and the extent of industrialization in the
independent India? How did this evolution of large scale
industries affect the existing small scale industries? What is
the history of industrialization in Kerala? What are the
industrial promotional agencies that are at work today? These
are some of the questions that await an answer in this chapter.
The answer that might emerge from the historical account of
industrialization in India and in Kerala will be briefly
enumerated at the end of this chapter.
Subject Matter of Industrial Development:
Underdeveloped countries are greatly handicapped by shortage of capital
for industry and enterprise.

Finance is the prime maker of growth. Anyway, capital for industry and
entrepreneurial zeal were severely and conspicuously scarce in India
when the East India Company (1600-1874) stepped into this country.
It was very difficult to raise capital on private initiative in the days of the
Company rule and, thereafter, because of damped forces of demand and
supply capital remained shy.
Naturally, under the circumstance, the state is supposed to act as a
godfather for promoting and financing industries. Since India was under
the British rule for almost 200 years (1757-1947), the British
Government, found it unprofitable and unnecessary to go for
industrialization in India. However, imperialist capital came in this
country as a matter of colonial policythe policy of subordination of
Indian to British capital. It was only after the First World War (19141918), that state patronage for industrial development was visible as
Britains supremacy all over the globe came under serious threat.
Against this backdrop, a new pattern was evolved to overcome the
obstacles of (i) shortage of entrepreneurship; (ii) non-availability of,
mainly, venture capital; and (iii) dearth of managerial skill and
knowhow.
This new pattern of industrial organisation that evolved came to be
known as the Managing Agency System (MAS)a peculiar business
entity in the early years of the nineteenth century. Before we embark
upon this form of industrial organisation, we will make a brief review of
the industrial development during the British rule.
Early Efforts of Industrialisation:
Modern industry or the large-scale industry is a mid-19th century phenomenon. Before the British conquest, Indias supremacy in the industrial
field reached its high watermarkIndia was called the industrial
workshop of the world during the 17th and 18th centuries. Demand for
Indian cotton goods in England during this time was unprecedented.

Indian cotton cloth was considered by Englishmen as the badge of style

and fashion of the time.
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Woollen and silk items were also in huge demand. All this development
brought untold miseries in England and other parts of Europe. Firstly,
import of Indian goods destroyed the prospect of woollen and silk
industries. Secondly, unemployment and suffering among the weavers
mounted up. Thirdly, change in the composition of Indias trade led to
the export of treasure from England to India.
To counteract these unhappy developments, some measures were taken
to pacify the British nationals, but with little relief. Ultimately, the way
out was found through legislations. Acts were passed, first in 1700, then
again in 1720, to prohibit or restrict import trade of Indian cotton good,
silks, calicos, etc., by total prohibition or by imposing heavy duties. As
these measures did not yield desired result, one British author
commented in 1728: two things amongst us are ungovernable: our
passions and our fashions.
What was the net effect of this state of industrial development? What
was industrialisation to India by the standards of time was deindustrialisation to Britain. India, however, had not been fortunate
enough as soon as the ugliest thing came on us in 1757the loss of
freedom through British conquest of India.
Growth of Indian Industries till World War I:
India had never been an industrial country in the modern sense of the
term. In this sense, even England and other industrialised countries of
today had not been so, until recently. What strikes most about India was
that even being predominantly an agrarian country large varieties of
industries existed in India and some of them competed quite successfully
with many other countries.

ADVERTISEMENTS:
But her industrial supremacy started crumbling when the English cotton
industry raised its head rapidly by the mid-18th century.
Two important developments of this were:
(i) The beginning of the era of industrial revolution in England around
1750 and
(ii) The battle of Plassey in 1757 that established the Company (foreign)
rule.
ADVERTISEMENTS:
As soon as the battle was won, the foreign ruler started abusing both
economic and political power in an un-sympathetic and hostile way.
Under pressure from the powerful rising English manufacturing
interests, EIC dealt a severe blow to Indian industries that led to final
extinctionthe phase of Indias deindustrialization. Now the cycle
turned inside out. It employed the arm of political injustice on Indian
products (one-way free trade) to strangulate a competitor with whom she
could not contend on equal terms.
The last nail in the coffin was hammered in 1813 when the trading
monopoly of the EIC was withdrawn. It was the political domination and
the commercial policy of Britain that threw open India to all. India now
suddenly was reduced to an importing country from an exporting nation.
Indian market now became flooded with machine-produced goods at a
lower price and also witnessed the loss of export markets. Further
tragedy was in store.
Being a colonial country, she had to pay a large sum for Englands
industrialization scheme. India was forced to supply raw materials for
triggering industrial revolution with greater rapidity in England. India
was then forcibly transformed from being a country of combined

agricultures and manufactures into an agricultural colony of British

manufacturing capitalism.
A history of modern Indian large scale private industry between 1850
and 1914 is associated with the developments in mainly plantations like
jute, cotton, and steel. Beginning of these modern Indian industries was
the product of Indias economic contact with Britain.
There was also a limited development of mining, especially coal. One
thing that is worth noting is that most of these industries, except textile
factories, were under European control.
In the early days of the Company rule, Indian raw jute had been in great
demand for the Dundee mills. World conditions after 1850 were quite
propitious for the growth of jute manufacturing and the credit for jute
spinning firm in Rishra, near Serampore, Bengal, went to George Acland
a Scottish. The foundations of cotton textile industry were laid also
during the early 1850s. Though the jute industry was dominated by the
foreigners the cotton industry was shaped and cared by the natives,
mainly the Parsee entrepreneurs.
Some abortive attempts were made by the East India Company in the
19th century to develop iron and steel industry. However, the credit for
the development of large scale manufacture of steel in India goes to
Jamshedji Tata and his son Dorabji. Tata Iron and Steel Company were
set up in 1907 and it started function of producing pig iron in 1911 and
steel ingots in 1912.
The progress or the achievements of modern large scale industries can
be visualised by considering the output produced and the employment
data. Between 1880 and 1914 large scale industrial output grew at the
rate of 4-5 p.c. p.a. a rate of growth that is comparable to other
contemporary countries of the world. But in the light of total economic
activity in India, output produced was rather insignificant. This is also
true about the employment situation; it came to less than eight-tenths of
1 p.c. of the total labour force in 1913-14.

Meanwhile Indias industrial structure started diversifying. In spite of

inadequacy of domestic demand and high production costs, industries
like woollen mills, breweries, and paper making industries made
significant march during this time. Though these industries were
recorded officially as the large industries, they were small in character.
Other industries having small-scale character that operated were tanning,
vegetable oil processing, glass-making, leather goods manufacturing,
etc. Despite diversification, Indias modern manufacturing industry
could not develop on a sound footing before the outbreak of the World
War I.
The three important reasons behind such industrial development were:
(i) Young in experienced entrepreneurs,
(ii) Absence of State aid towards industrialisation,
(iii) Steep uninhibited competition with developed foreign machine
manufactures.
R. C. Majumder then adds: The pattern of industrial development
which had emerged in the 19th centuryconfined to a limited sector and
concentrated in a few unevenly distributed areasremained virtually
unchanged till the beginning of World War I, though within these narrow
limits the years 1905-14 witnessed a relatively rapid growth.
Industries in the Inter-War Period (1919-38):
No country under colonial dependence could undertake any industrial
transformation, if not all-round development. Up to the First World War,
India experienced the classic period of imperialism of free trade and the
British Governments unsympathetic, hostile policy against industry.
In addition, shortage of capital, management experience and technical
expertise, as well as the absence of a growing indigenous market, and,
above all, general poverty, caused slow expansion of Indian industries.

Even then, one can safely conclude that during 1850-1914, the
foundations of modern industries were laid in India.
Meanwhile, the outbreak of the First World War exposed the weakness
of Britains strategic position in the East as India had been deprived to
develop the most elementary basis of modern industry. In order to
impress upon the Indian people and the (industrial) bourgeoisie, Britain
granted some political and economic concessions, particularly future
industrialisation during the War and immediately after the War.
As the issue of tariff protection crept into the heads of Indians, the
British Government appointed the Industrial Commission in 1916 and
assured that industrialisation efforts would henceforth continue with
utmost sincerity. Unfortunately, industrialisation scheme as prepared by
the Industrial Commission ultimately came to nothing.
However, during the war-period, industries like cotton and jute made
much headway. Steel industry also experienced substantial growth.
Consumer goods industries like chemicals, cement, fertilisers, mineral
acids, etc., for which India depended on foreign countries, also
progressed during the War.
However, such prosperity of Indian industries was not a long-lasting
one. Above all, promises made by the foreign ruler remained, however,
unaddressedas usual. On the contrary, faced by the intense foreign
competition, Indian industries in the mid- 19205 demanded protection in
an unwavering manner. To this end, the Fiscal Commission was
appointed in 1921 that ushered in a policy of discriminating protection.
This was indeed a belated response to repeated demand made by the
Indians from at least since the 1880s. The policy definitely helped some
industries to develop. But the end result was rather a haphazard
development of certain industries and not general economic
development as such. In 1936, The Economist observed Indias
industrialisation effort: Although India has begun to modernise her
industries, it can hardly be said that she is as yet being industrialised.

On the whole, during the inter-war period, output of cotton piece goods,
steel ingots, paper, etc., increased substantially. Many other industries
also progressed even in terms of employment and the number of
factories. But as far as diversification was concerned, it was indeed slow
and the state of transformation of the economy was only marginal.
Industries during 1939-47:
The Second World War, however, opened a new phase in Indias
industrial history. As the character of the World War II was different
from that of the First, the latter created a far more urgent and intense
demand for the rapid growth of Indias basic and key industries. Against
the backdrop of this favoured ambience of industrial development and
the near-cessation of imports due to war operations, Indian industries
somehow came to take pleasure in having a quasi- monopoly situation in
the home market.
As a result, not only industrial output of large scale industries expanded
significantly, but also a more widening of the industrial diversification
became possible during the war-time years. During 1938-39 and 194546, the general index of output of all large scale manufacturing activity
(at 1938-39 prices) rose from 100 to 161.6 and that of factory
employment increased from 100 to 159.
Despite this headway, Indias manufacturing before independence
displayed many frailties. Firstly, India did not possess capital goods
industries worth the name. This, therefore, hampered her potentiality to
reproduce its existing productive capacity. Secondly, import dependence
of the Indian manufacturing sector was enormous.
Thirdly, possession of technical skill and institutes offering technical
education were virtually negligible. Industrial development is largely
conditioned by the stock of human capitalthe stock of scientific and
technical cadre. India was still a country denied to grow by the apathetic
foreign government.

However, the prospect for industrial development in India after independence must not be undermined as she had already constructed enough
possibilities for industrial development.
Reasons for Low Industrial Development in India:
In this connection, it is better to point out some reasons behind the low
level of industrial development in India.
It was the result of:
(i) Inadequate capital accumulation;
(ii) Mobilisation of unproductive investment; (Keynes castigated
inordinate love for liquidity of Indians. Male people were desirous of
seeing jewellery in the neck of their female counterparts);
(iii) Undue preference for quick-return yielding commerce and trading
activities of the Indian capitalist classes; and
(iv) Concentration of entrepreneurship in the hands of a few small
sections of Indians.
In addition, shortage of capital goods and absence of skilled personnel
also acted as drag on Indias industrial development.
Though these acted as strong depressants, colonial status
seemed to be the most strong stumbling block for Indias
drive for industrialisation. Above all, the contribution of
the British Government towards Indias industrialisation
was minimal before 1916, that is, before the
establishment of the Industrial Commission. The
industrial policy of the imperial power could be described
as a case of too little and too late. Industrial Policy of
British in India
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Read this article to learn about the industrial policy of British in India !
To understand the British Industrial policy, pre-independence industrial
development of India can be divided in three periods.
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We are describing the accounts of these periods as follows:
Period I (1850-1914):
Industrial development was to a great extent a by-product of certain
interrelated developments like improved transport and communications,
growth of foreign trade and consequent accumulation of commercial
fortunes.

Image Source: its.unl.edu/images/policy.jpg

Railway building and maintenance had effects more far reaching than
the opening up of the interior and exposing agriculture to the market
economy. It released some of the latent potentialities for industrial
development.
The major features of industrial development in India during this period
were as follows:
(i) The decline traditional handicrafts paved the way for the
transformation of the Indian economy. Despite many difficulties, a better
state of affairs was discernible so far as industrial activities were
concerned. Educated Indian was becoming more and more eager to take
to technical education. Capital was overcoming its proverbial shyness.
Steam was fast replacing manual power and serious attempts were made
to start new industries.
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(ii) The beginning of joint-stock enterprise was made but the progress
was slow.
(iii) The development of towns contributed immensely to the growth of
the leading industries of India. Railway construction was a powerful
factor determining the growth of towns in India.
(iv) The progress of industrial enterprises in India was linked up with the
political movements at home and abroad. The American Civil War, the
Crimean War, the Swadeshi Movement, etc., all facilitated the industrial
development of the country. Not only was there no planned effort at
industrialisation, but the British Government also adopted, by and large,
a hostile attitude to industrial growth.
(v) The industrial development of the country was greatly stimulated by
the opening up of the Suez Canal in 1869 and by the network of railways
which opened up the interior to trade. The improvement of an oceanic

transport system encouraged the development of industries in India by

facilitating the import of skill and machinery from abroad.
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(vi) The development of Indian industries was lopsided in character in
the sense that only some light and consumer goods industries were
started and no attention was given to the machine-manufacturing and
heavy engineering and heavy chemical industries and other basic and
key industries.
(vii) From the beginning, industries grew up only in certain localities
while other localities, although they had a high industrial potential, were
not developed, Owing to the lack of proper planning, the location of
industries in India was defective which let to an unbalanced regional
growth.
Period II (1915-139):
During this period a number of events occurred that shaped and
conditioned the pattern of industrial development in India. Among these
the more important were: The First World War (1914-18), the post-war
boom (1919-20), the fluctuating exchange rates (1921-27), the
worldwide depression (1929- 33), the adoption of Congress ministries in
many provinces.
It was also during this period that the Indian Industrial Commission
(1916) with Sir Thomas Holland as Chairman, the Fiscal Commission
with Sir Ibrahim Rahimatoola as Chairman, The royal (Whitley)
Commission on Labour (1929), the Central Banking Enquiry Committee
(1930), the External Capital Committee (1925), and the Taxation
Enquiry Committee, were appointed to make a thorough enquiry into
respective fields.
ADVERTISEMENTS:

Up to the First World War, the opposition of the British Government to

industrial development in India was open and unconcealed. But the First
World War proved an eye-opener to them. First, when the war broke out
impels from foreign countries had completely ceased and this brought
home the need for developing India industrially,
Secondly, it was necessary for the British ruler to make certain political
and economic concessions and promises of concessions to secure the cooperation of the Indian people during the war and in the disturbed period
following the war. The economic concessions took the shape of a
proclamation by the Government to the effect that in future
industrialisation would be promaed by all means,
Thirdly, foreign competition had been affecting British import in India.
It was felt that the growth of some industries within India was better
than foreign competition displacing British Import. These considerations
led to the appointment of the Industrial Commission and the Munitions
Board.
The Munitions Board helped the progress of indigenous industries in
various ways such as:
(i) a direct purchase of India-made articles and materials of all kinds
needed for the army, the civil departments, and the railways;
(ii) the diversion of all orders from the United Kingdom and elsewhere
to manufacturers in India; and
(iii) assistance to Indian firms in importing plants or technical experts
from abroad.
In fact the Board gave considerable stimulus to certain established
industries like cotton, jute, iron and steel, leather, etc. But once the war
and the fear that the British Empire might be endangered were over, the
concessions in favour of industries were withdrawn. By the middle of
1920, industries were again subjected to the full force of competition.

The Fiscal Commission (1922) recommended a policy of discriminating

protection to be administered through an expert body called the Tariff
Board.
Altogether 13 industries received protection and this enabled a few of
them to establish themselves on a sound footing. At the same time, large
amounts of British capital were exported to India. For the Indian
industries this was an extremely difficult situation. This difficulty was
aggravated by the policy of devaluation adopted by the government.
The rupee exchange rate was fixed 1s. 6d. in place of the pre-war rate 1s.
4d. How damaging to the Indian industries these series of blows were
can be realised from the fact that market value of the Rs. 100 share of
the Tata Iron and Steel Company, an outstanding leader of the Indian
capitalist class, tubbed down to Rs. 10, and it was compelled to go to the
London market for a loan. Tariff policy which gave British products an
advantage over non-empire products in the empire market now became
the key-note of the tariff system.
However, there can be no doubt that in spite of the difficulties and
obstacles which India had to face, there was a considerable progress in
industrial development during this period. India was placed as one of the
eight leading industrialised countries of the world.
The production of cotton piece-goods in the country increased two and a
half times, that of steel ingots rose eight times, and of paper went up two
and a half times. In the case of sugar, India became self sufficient within
a period of four years, 1932-36. The cement industry produced about 95
per cent of the total requirements by 1935-36. Other industries like
matches, glass, vanaspati, soap, and a number of engineering industries
also witnessed increased production. A beginning in the manufacture of
electrical equipment and goods was also made by 1938-39.

Period III (1940-1950):

The Second World War broke out in 1939. The war found India
somewhat better prepared and equipped than during the First World War,
but as compared with the level and variety of demands j imposed on the
economy, the situation was not very different. Cotton, jute and steel
remained the principal items of war procurement though large orders for
ammunition shells gave engineering factories and railway workshops
some useful experience of mass production.
The Second World War gave a considerable impetus to the development
of industrial potential; its contribution to actual expansion was not
equally great. After an initial setback caused by stoppage of trade and
disruption of shipping, and upward trend was established this lasted till
1945 and then petered out the very next year.
Those industries which were already in existence worked to full
capacity. New plants were added in several cases and a few basic
industries were established. The index of industrial production rose from
102.7 in 1939 (1937 = 100) to 120 in 1945. The major increases were
under steel chemicals, paper, and paints; while jute, matches, sugar and
wheat flour remained depressed.
The production of major industries could not, on the whole, be said to
have increased substantially though higher prices and profit margins did
bring about unprecedented prosperity to industrial enterprises and
managements. Capital equipment was exposed to considerable wear and
tear; maintenance and replacement were neglected. Coal and transport
bottlenecks remain a serious threat to output expansion throughout the
war.
The immediate problem for industry after the war was to make up the
damage caused by excessive wear and tear and lack of maintenance. A
worldwide shortage of machinery and shipping, political t disturbances
and blocking of sterling balance, made it difficult to launch any major

industrial expansion after the war. The partition left India with nearly the
entire industry of undivided India.
Major Modern Industries:
The industrial revolution brought forth the need for developing
industries on modern lines. In order to develop British industries it was
essential to transform Indian infrastructure too. As part of it changes
were introduced in agriculture and railways were developed.
Railways were developed with the initiative of Lord Dalhousie in 1853.
The Company laid the railway lines in the country to export from the
interiors to ports and vice versa to reach out the imports to the markets
in the remote regions of India. Railways helped in making possible
production for a market and opening up the interior to large-scale operations.
The encouragement to cash crops led to the growth of plantation
economy wherein profitable crops were especially cultivated for
marketing purposes. Among the industries that were made possible by
the railways was the cotton mill industry.
The first successful Indian cotton mill started in 1853 in Bombay. Later
cotton mills were established at Sholapur. Ahmedabad and Madras.
Likewise jute was cultivated was a cash crop and the first jute mill was
set up in 1855 in Rishra in Bengal followed by many such mills.
The British also encouraged the infrastructure industries. They were
aware that cheap labour was easily available in India and this was a
potential they could exploit. Also the procurement of raw materials and
mineral resources from India made it necessary to develop these
industries in India too. The first iron and mill was set up in the Jharia
coal mines area in 1873. Similarly other industries such as glass, paper,
leather industry were set up by the British Government in India for
serving their own purposes.

Labour & Trade Union Movements:

Towards the end of the 19th century, before the Indian nationalist
intelligentsia began to associate itself with working class agitations
towards the end of the 19th century, there were several agitations,
including strike by workers in the textile mills of Bombay, Calcutta,
Ahmadabad, Madras and so on, in the railways and in the plantations.
However, they were mostly sporadic, spontaneous and unorganized
revolts based on immediate economic grievances and had hardly any
wider political implications.
1. In Bengal, Sasipada Banerjee, a Brahmo social reformer set up a
Workingmens Club in 1870 and brought out a monthly journal called
Bharat Sramjeebi (Indian Labour), with the primary idea of educating
the workers.
2. In Bombay, N.M. Lokhanday brought out an Angio-Marathi weekly
called Dina-Bandhu in 1880, and started the Bombay Mill and Millhands
Association in 1890. He took the initiative in organising protests against
working conditions obtained in factories.
3. The first organized strike by any section of the working class was the
signallers strike in May 1899 in the Great Indian Peninsular (GIP)
Railway and the demands related to wages, hours of work and other
conditions of service. Nationalist newspapers such as Tilaks Mahratta
and Kesari cane out fully in support of the strike.
4. The Swadeshi upsurge of 1903-8 was a distinct landmark in the
history of the labour movement. The number of strikes rose sharply and
many Swadeshi leaders enthusiastically threw themselves into the tasks
of organizing stable trade unions, strikes, legal aid and fund collection
drives. Four prominent names among the Swadeshi leaders who
dedicated themselves to labour struggles were Aswinicoomar Bannerji,
Prabhat Kumar Roy Chowdhuri, Premtosh Bose and Apurba Kumar
Ghose.

5. The Madras Labour Union founded in 1918 by B.P Wadia was the
first modern-trade union organisation in India.
6. The All-India Trade Union Congress (AITUC) was founded by
nationalist leaders on 31 October 1920. The first session of the Congress
organised at Bombay was presided over by Lala Lajpat Rai and Dewan
Chaman Lal was its general secretary. The Gaya session of the Congress
(1922) adopted a resolution enabling party workers to participate in
trade union activities. In 1926, the Trade Union Act was enacted which
gave legal status to the trade union and laid down conditions for
registration and regulation of trade union activities.
7. With the growing communist influence in AITUC from 1925
onwards, the moderate groups under N.M. Joshi withdrew from the
AITUC and formed the All India Trade Union Federation (AITUF) in
1929.
8. The Whitley Commission on Labour or the Royal Commission on
labour under the chairmanship of Whitley, was set up in 1929 to inquire
into the existing conditions of labour in industrial undertakings and
plantations in India. The commission submitted its report in 1931.
9. M.N. Roy, the communist-turned-Radical Democratic leader seceded
from the AITUC and formed a pro-Government union called the Indian
Federation of Labour. In 1944, national leaders led by Sardar Vallabhai
Patel organised the Indian National Trade Union Congress.