How British Rule Changed India’s Economy: The Paradox of the Raj

How did British colonial rule shape the economic development (or underdevelopment) of South Asia? My new book answers the question.

Those who wish to find an answer to this question have two choices. First, they can read books and articles that tell a story. The story is this: the British government extracted resources from India and insisted on foreign trade being free. The policy enriched Britain and impoverished India. Thus, colonialism reduced a rich region to poverty. The advocates of this narrative include a collection of Marxists, politicians like Shashi Tharoor who dabble in history, blog-writers, and economists seeking an explanation of world inequality.

Second, they can read books and articles the professional historians of India write, which are more reliably evidence-based than the former set and reject many of the claims the former set makes: for example, that India was once a prosperous land, or that the state extracted resources. But this scholarship does not suggest another paradigm. It goes deep into the working of the state and the economy, so deep that it loses its way in detail. Few of these works get noticed.

My new book steps in to meet the gap that the historians leave behind. It is evidence-based, and it tells a story. What story is that?


The evidence tells us three things. First, the open economy the British Raj sponsored delivered two extraordinary benefits to the Indians: it stimulated business and reduced mortality rates. Second, the state’s fiscal capacity was too small for it to make a difference in any other way. And third, some of the most stressed peoples in the region – most peasants, lower castes, and women – did not become better-off in this time. They needed the state, but the state was not there for them. The story is that colonialism led to more inequality while it helped private enterprise grow. The book shows why the outcome of colonialism was such a paradoxical mixture of success and failure.

The story shows how difficult it is to sum up or represent India’s development trajectory in the colonial times with a benchmark like an average (per capita) income. Economists overlook the difficulty, behave as if the region’s experience can be represented by one average income dataset. The dataset shows that India fell behind the West in income growth, suggesting that we must all try to answer why Indian development was such a tragic case of falling behind the West. This is a non-problem, and a misreading of the region’s history. It fails to notice that Indian economic history is in fact marked by a very diverse pattern of change, extraordinary growth in business and extraordinary stagnation in agriculture and social development.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s