Which of the following was/were the reason/reasons for the lack of economic development in India in the 19th century? 1. Officially the British Government was committed to a policy of laissez-faire, but it was actually a policy of discriminatory intervention. 2. European entrepreneurs had connections to banks and agency houses, while Indians had to rely on kin, family and caste men. 3. When plantations were transferred to individual capitalist ownership, native investors were deliberately ignored. Select the correct answer using the code given below.

Correct — D, (d) 1, 2 and 3. All three numbered statements state accepted explanations for the weakness of industrial and commercial development in nineteenth-century India, so the code that takes all of them is the answer. Statement 1 is the standard verdict on colonial economic policy. The government’s declared creed was laissez-faire, and it used that creed to refuse Indian demands for protective tariffs; but the same government intervened repeatedly on the other side. Import duties on cotton goods were abolished in the 1880s, and when a duty was reimposed in the 1890s for revenue an excise duty was placed on Indian mill-made cloth to cancel the protection it would otherwise have given. Government stores were bought through the India Office in London. Railways were built with a return guaranteed to British investors, and their freight rates favoured the carriage of raw materials to the ports. That is intervention, and it ran one way. Statement 2 describes the difference in access to capital. European firms in Calcutta and Bombay operated through managing agency houses and had the exchange and Presidency banks behind them, so a promoter could raise money on an institutional footing; Indian businessmen raised theirs within family, caste and community networks — Parsi, Marwari, Gujarati, Chettiar — which were effective in trade but limited in scale and unreliable for long-lived industrial ventures. Statement 3 is the plantation case, best documented in Assam tea. The wasteland rules of 1838 made it practically impossible for Indians to take up plantation land, and when the terms were relaxed in 1854 the land rush that followed was overwhelmingly European. Since 1, 2 and 3 all stand, the code taking all three is correct.

Why the others are wrong

• (a)1 only — This keeps only the policy statement and drops the two that explain the private side of the problem. It is the answer of a candidate who has revised the standard nationalist critique of colonial economic policy — one-way free trade, the drain, the excise on Indian cloth — but has not read the economic history that deals with capital, credit and enterprise. Statements 2 and 3 are not additions of doubtful accuracy; they are the parts of the explanation that account for why Indian capital, where it existed, went into trade and moneylending rather than into industry.
• (b)2 and 3 only — This drops statement 1, which is the best supported of the three. The claim that official laissez-faire coexisted with discriminatory intervention is not a rhetorical flourish but a description of specific measures: the abolition and later re-imposition of cotton duties with a countervailing excise, the stores purchase rules, the guaranteed railway returns and the freight structure that went with them. A candidate who rejects statement 1 has usually been misled by the word laissez-faire itself, reasoning that a government committed to non-intervention cannot also be accused of intervening — which is exactly the contradiction the statement is pointing at.
• (c)1 and 3 only — This keeps the policy statement and the plantation statement while dropping the one about banks and agency houses, and it is the most understandable of the three wrong codes because statement 2 is the least often taught. It is nonetheless well established. The managing agency system concentrated control of tea, jute, coal and shipping in a small number of European houses that could draw on the exchange banks; Indian firms, with no comparable institutional credit, depended on capital raised inside the family and the community. Access to finance is a standard element of every serious account of why industrialisation was slow, and dropping it leaves the explanation incomplete.

The question is asking why India, which had been a major manufacturing and exporting economy before the colonial period, industrialised so slowly in the nineteenth century, and the accepted answer has several strands that fit together rather than competing. Policy is one: free trade was applied to India by a government that did not permit India to protect its own industries, while the state’s own purchasing, railway building and land grants worked in favour of British firms. Access to capital is a second: modern industry needs long-term finance, and the institutions that supplied it — the exchange banks, the managing agency houses — were European, so Indian promoters fell back on community credit. Discrimination in the allocation of opportunities is a third, and the plantations show it most plainly, since it was the government that decided who could take up land and on what terms. To these are usually added the drain of resources through the Home Charges, the loss of handicraft employment as machine-made imports came in, and the low level of technical education. None of the strands excludes the others, which is why an all-of-them code is a perfectly reasonable answer to a question phrased in this form.

Key facts

• Import duties on cotton goods were abolished in the 1880s, and when a duty was reimposed in the 1890s an excise on Indian mill-made cloth was added to cancel the protection.
• Government purchases of stores were made through the India Office in London, which in practice reserved them for British suppliers.
• Railways in India were built by companies with a rate of return guaranteed by the government, and freight structures favoured the movement of raw materials to the ports.
• European enterprise in India worked through managing agency houses with access to the exchange and Presidency banks; Indian enterprise depended largely on family, caste and community credit.
• The wasteland rules of 1838 made it nearly impossible for Indians to take up plantation land in Assam; the rules were relaxed in 1854 and set off a land rush.
• The Assam Company, formed in 1839, was the first large commercial venture in Assam tea, and the plantation economy that followed was overwhelmingly European-owned.
• The nationalist critique of colonial economics — the drain of wealth, one-way free trade and deindustrialisation — was set out by Dadabhai Naoroji, M. G. Ranade and R. C. Dutt.

Common traps

• Rejecting statement 1 because laissez-faire and intervention sound contradictory. The contradiction is the point being made.
• Assuming that a statement including three numbered items must contain at least one false one. Codes taking all the statements are ordinary answers.
• Judging the code before judging the statements. Each statement has to be settled on its own before the options are looked at.
• Confusing the drain of wealth, which is about transfers out of India, with the internal obstacles to enterprise that this question is about.

• practice — not a real PYQ

  The excise duty imposed on Indian mill-made cotton cloth in the 1890s is generally cited as evidence of which of the following?

  • (a)The success of Indian industry in securing protection
  • (b)A policy of discriminatory intervention behind a declared free-trade creed
  • (c)The government’s need to fund famine relief
  • (d)The application of protective tariffs to British imports

  Answer(b) A policy of discriminatory intervention behind a declared free-trade creed

• practice — not a real PYQ

  The wasteland rules of 1838, later relaxed in 1854, are chiefly associated with the development of which industry in India?

  • (a)Jute mills in Bengal
  • (b)Cotton mills in Bombay
  • (c)Tea plantations in Assam
  • (d)Coal mining in Chota Nagpur

  Answer(c) Tea plantations in Assam