The First World War ushered a change in the economic poli- cy of the British government of India; although the beginning of that change was visible in the first decade of the 20th cen- tury. This change was not motivated by any love inter- national and national circumstances forced the British to adopt this policy. The main reasons for the change can be summarized as follows
Firstly, the death of Queen Victoria in 1901 coincided with the death of the supremacy of Britain in the world, a process started in the last quarter of the 19th century. Japan and America, among others, were the two most se- rious rivals and competitors of British trade and industry. These countries wanted to penetrate into the Indian market. Politically and economically it was not possible for Britain to prohibit outright the entry of these countries' goods into India.
Secondly, the political struggle of the Indian people took a sharp turn in the beginning of the 20th century. With the proposed partition of Bengal by the government in 1904. in pursuance of their 'divide and rule' policies, the enthus- iasm of the people of India burst forth in the demand for complete freedom. In the economic field, this movement gave rise to the Swadeshi (home-made) Movement. A great wave of industrial enthusiasm spread throughout the country, which was largely responsible for the Industrial acceleration after the First World War, especially of the textile industry.
Thirdly, due to the serious shortage of shipping facili- ties and increasing risks of German submarine attacks dur- ing the war, the foreign trade of India, like that of any other country, was upset. The supply of vast quantities of Bri- tish goods to India was largely cut off. The large imperial interests demanded that India supply war needs to Britain and her allies.
Fourthly, the co-operation and active support of the people of India was urgently required by the British govern- ment during the war and the period succeeding the war. could not be expected unless the British agreed to give politi- cal and economic concessions to India. The economic conces- sion was the promise by the British to industrialize the count- ry in future by all possible means. But like most other pro- mises, this was by and large not fulfilled.
All these circumstances and heavy demands created by the war compelled the British government of India to think grudgingly in terms of industrializing the country for the first time after more than 150 years of its rule. The Viceroy of India, Lord Hardinge, wrote to the Secretary of State in a dispatch on Nov. 26, 1915 that 'it is becoming increasingly clear that a definite and self-conscious policy of improving the industrial capacity of India will have to be pursued after the war, unless she is to become the dumping ground for the manufacture of foreign nations who will be competing the more keenly for markets, the more it becomes apparent that the political future of the larger nations depends on their eco- nomic position. The attitude of the Indian public towards this question is unanimous, and cannot be left out of account . After the war India will consider herself entitled to de- mand the utmost help which her Government can afford to enable her to take her place, so far as circumstances permit, as a manufacturing country.'
The Chelmsford Report issued in August 1918 stated that "on all grounds a forward policy in industrial develop- ment is urgently called for, not merely to give India economic stability, but in order to satisfy the aspirations of her people .Both on economic and military grounds, imperial interests also demand that the natural resources of India should henceforth be better utilized. We cannot measure the access of strength which an industrialized India will bring to the power of the Empire.
Why was this realization made after over 150 years of British rule? Obviously, the war, the consequent cutting down of supplies from overseas, and also the British strategic position in the East necessitated thinking in terms of indus- trialization of India to turn her into a base for "Eastern The- atres of war' The Montagu-Chelmsford Report stated: "The possibility of Sea communications being temporarily interrupted forces us to rely of India as an ordnance base for protective operations in the Eastern theatres of war. Now- a-days products of industrially developed communities coin- cide so nearly in kind though not in quantity with the cata- louge of munitions of war that the development of India's natural resources becomes a matter of almost military necessity."
In pursuance of this change, the government appointed an Indian Industrial Commission in 1916. This commission in 1918 recommended among other things that the govern- ment should encourage industries in the country. This remained wishful thinking because the government was not prepared to industrialize the country. But, the war, not the government, afforded a natural protection and stimulus for some industrialization.
The war was followed by a boom, which lasted up to March 1920. During this short period existing industries made 'staggering profits' and some new industries were started. Totally owned British jute mills made seven times the profit of their total capital in just four years, from 1918 to 1921. Indian owned textile industry also made huge profits. The labourers, who made these profits possible, were very niggardly paid. Indian industries after the middle of 1920 had to face the full force of foreign competition. Naturally they clamoured for protection. This led to the appointment of the Fiscal Commission in 1921 which reported in 1922. The official majority of the commission recommended a policy of "discriminating protection' of a halting nature, in the words of an Indian economist, 'to soothe external interests. They laid down three condi- tions for the selection of industries for protection. Such conditions, which were inconsistent, had never been laid down in any free country in the world, and, in the words of an Indian economist, 'not even in the industrially advanced countries could all these conditions be satisfied" The minority Indian members of the commission, five in all, recommended "full protection' arguing that the main recommendations of the majority report had been "hedged in by conditions and provisos' in such a way as to impair its utility and the progress of industrialization. The gov- ernment, anxious as always to protect British interests, adopted the official members' report and rejected the Indian members' report. The Majority (i.e. official), also recom- mended the appointment of the Permanent Tariff Board. As this was not in the British interests, the government rejected it and instead appointed an ad hoc Tariff Board, whose recommendations were accepted or rejected at the free will of the government. The most important defect of the protection policy was the hostile attitude of the govern- ment towards the industrialization of the country. This hostile attitude was apparent not only in the half-hearted manner of carrying out the policy of protection, but also in whittling down the progress of industries by imposing on India a general system of Imperial Preference under the trade agreement between the British government of India and the British government of Britain. This agreement was hurriedly concluded despite the strong opposition of Indians and the Legislative Assembly. The agreement "gave British products a competitive advantage over both non-Empire and Indian manufactures in the Indian market. " Obvious- ly, Imperial Preference gave a heavy blow to many small struggling Indian industries. Its history and its terms again showed that India was to remain a supplier of raw materials and only incidentally a supplier of manufactured goods. As has been rightly pointed out, "the influence of Manchester capitalists is written large in Indian tariff history" India was to remain a "hewer of wood and drawer of water' for Britain.
During and after the First World War, British investors found India a haven for earning huge profits. The reasons for this were; firstly, the conditions created by the war itself which led to increasing demand and decreasing imports; secondly, British industrial capacity by now had reached a saturation point where further investment could not lead to big profits; thirdly, the labour in India, as com- pared to England, was extremely cheap; and fourthly, un- like Britain there were practically no restrictions placed on the capitalists to exploit Indian labour. Consequently, the investment of British capital in India jumped up from about 10% in 1913 to about 25% in 1933 of total British over- seas investment." In 1930, probably more than nine-tenths of all foreign investments in India were in British hands. This was the third stage of looting India, this time by finance capitalism.
The British capital dominated and owned most of the industries of India. Even the cloth industry, where Indian capital was paramount, to a large extent was controlled by the British through the 'Managing Agency' system. The British industrialists, protected by their government, ex- ploited Indian resources, including labour, for their own benefit. Moreover, most of the British companies were registered in Britain, which means that the taxes paid by them on their staggering profits made in India, were to go to that country, and not to the Indian exchequer. Also, no law existed which could compel these British and other foreign capitalists to hire Indians for managerial or techni- cal positions. As a matter of fact, the attempt was to ex- clude Indians from such positions, where they might be able to compete with British know-how and entrepreneurs.
What India mainly gained, therefore, was only the employment of a few thousand coolies, including children and women, who were paid an infinitesimal share of the 'monstrous profits' as their wages. Trade unionism was considered almost a crime. During the British rule up to 1947, "laws and ordinances made it difficult for the unions to function, it was an open secret that the Home Department through the Criminal Investigation Division was keeping a suspicious eye on trade union activities.
Henry Brailsford wrote in 1943 "The profits of this exploitation under favourable conditions often put a strain on our power of belief. Coal mines have been known to pay 160 per cent on a daily wage of 8d. nor were such rates attained only in boom years the dividends of one of these mines averaged over 80 per cent throughout the period 1901-29. Out of 51 jute mills, 32 paid as much as 100 per cent in one or more years between 1918 and 1927; 29 never paid less than 20 per cent, and 10 never less than 40 per cent.
With sufficiently full figures before me I reckon that during the early post-war years, for every £100 which these jute mills paid in profits to their shareholders in Scotland they paid £12 in wages to their Indian workers. India is, indeed, the brightest jewel in the British crown.
Even these monstrous profits do not tell the whole of the story. Most of these British companies are registered in London, which means that the income-tax levied on profits won by exploiting Indian workers goes not to Indian but to the British Exchequer-a form of tribute from which the whole dependent Empire suffers, Africa as well as Asia. To the reader these are merely figures to my memory they recall the barely human existence to which in stinking and dilapidated hovels these workers were condemned. A civilized government would have contrived to raise their standard of life by taxing such profits. It may be as well to remind the English reader-to Indians the bare mention of such a thing may look like a joke in the worst of taste that not even in a rudimentary form does any system of social secu- rity exist in this profiteer's paradise."
John Gunther in 1939 bestowed on India the dubious honour of having the worst slums in the world. .Workmen getting three of four rupees (say $1.20) a week live in cells with no light, no water, no sanitation; the entrance to the bovels is a tunnel streaming with sewage, nine to ten people may live in rooms eight feet by six. Disease, squalor, de- gradation of the human being to the level of animals are rampant as men live in stinking filth"
As late as 1931, the official Whitley Report speaks of workers as young as five years of age" who toil "without adequate meal intervals or weekly rest days, and often for ten or twelve hours daily for sums as low as two annas' (i.e. about two pence a day). Also 'very young children sleep alongside their mothers on piles of wool, their faces and clothes covered with germ laden dust.' The Commissioner found 'reason to believe" that 'corporal punishments and other disciplinary measures of a reprehensible kind" were used in the case of smaller children. and that parents did not protest because they were in debt to the employers.
The same Report pointed out that children worked in the plantations 'as soon as they could walk" The divi- dends which these plantations declared, according to R. Reynolds in 1937, were 'up to 225% in recent years.
The government of India was not satisfied only with Imperial Preference. They devised other methods to control and check the growth of Indian industries. One method was the banking system, which was mostly British owned and controlled. The banking system provided finances without which modern industrialization is impossible. An American author tells us the attitude of the banks towards Indian industrialization because most of the large banks are either Government-controlled or are branches of British and other foreign banks, Indian industrialists find it almost impossible to finance industrial enterprises of which the British do not approve.
Among other methods used for the strangulation of Indian industries were the Managing Agency system and the manipulation of the currency and exchange rates in favour of British interests. What little was done to build the modern industry was in the field of consumer industry which was mostly owned and/or controlled by the British and other Europeans. The basic heavy industry, necessary for further industrialization of a country, was completely absent up to the eve of the Second World War, except the Tata Iron and Steel Company; which survived only because of nationalists' pressure.
This pseudo-industrialization of India did not mean, however, that the percentage of population dependent upon industries was increasing and on agriculture decreasing; rather, the position was the reverse. This happened because the large-scale industry which needs more capital and less labour, limpingly progressed, the handicraft industry, which employed more labour and less capital, declined further. As a result, the pressure on agriculture, which had already reached a saturation point by the end of the 19th century, increased even more in the 20th century. Even on the eve of the Second World War, the real picture of India as a whole was of deindustrialization, if we judge it on the num- ber of people dependent upon industries for their livelihood. An American writer wrote in 1942 "Between 1891 and 1911, the percentage of the population dependent on agri- culture increased from 61% to 72% as more and more artisans, craftsmen, spinners, weavers, etc. were forced to turn back to the land. This meant a continuous diminishing of the amount of land available to each cultivator.
And "During the period, 1911-31, for example, the number of workers employed in all types of industry, includ- ing handicrafts, declined from about 17 million to about 15 million, while the working population increased from 149 to 154 million.
The Second World War was declared in 1939 and the Viceroy of India without consulting the Indian people or their leaders plunged India into the European war, as was done in the First World War. The economic, strategic, and political reasons which were present in the First World War were more compelling in 1939. And yet the government, keeping an eye on the future, followed an obstructionist policy regarding the industrialization of the country and, in the words of India's late Prime Minister, Mr. Nehru "It was considered undesirable to develop any industries in India which might compete with British industries in the post-war years. This was not secret policy; public expres- sion was given to it in British journals, and there was con- tinuous reference to it and protest against it in India. "
This policy of keeping India as a supplier of raw materials and buyer of foreign finished products was en- forced in spite of the fact that India, alongwith Australia, was chosen as the most suitable for conversion into indus- trial base for war purposes by the Eastern Group Confer- ence held in Delhi in 1940, and in spite of the fact that an American Technical Mission, headed by Dr. Grady, recom- mended the establishment of some new industries for which India was fully equipped. The Reports of the Eastern Group Conference and Grady Mission were never published in India, perhaps because the government did not think that these reports were in the 'public interest', i.e. British interest. The 'Eastern Economist' wrote on August 31, 1945 "We could make everything and yet nothing. We were just suppliers of anything and everything, members, repairers of all things on earth, but the makers of none. We had no system, no plan. Rather there was a plan-clear-cut and thorough-to prevent the industrialization of this country in the post-war period."
Despite this obstructionist policy, the war created huge demand and almost stopped imports from foreign countries causing a number of industries to benefit in different deg- rees. Existing and organized industries increased their capacities, production, and profits. Unlike the First World War which mostly stimulated the development of consumer industries only, the Second World War also encouraged to some extent the establishment of 'key' industries.
However, India, unlike other countries such as Aus- tralia and Canada, did not benefit from the war except in armament and other specialized industries associated with the war.
On the other hand, some new projects, planned by Indians before the war, had to be abandoned because machinery and other materials could not be imported." Not only this, severe inflation during and after the war led to an abnormal rise in prices causing innumerable hardships to the masses of India.
The Third Phase of the Pillage 1914-1947
According to a British apologist, in 1939, the facts that hold true up to the end of the British rule in 1947 are; India had an industrial establishment of only 2 million out of 300 million souls, a steel output of less than a million tons, and a population which depended for as much as 80% of its livelihood on a static, over-crowded, agrarian economy."
Even in the middle of the 19th century, about 55% of the population were said to have been dependent on agricul- ture," when industries and trade of India were either totally or partially finished. Before that, when there was perfect coordination between agriculture and industry, the proportion of the people dependent upon agriculture must have been less than 55%. Progressive agriculturalization (in the sense that more and more people had to depend on agriculture) and progressive deindustrialization were important landmarks of British imperialism in India. By the end of British rule, India's imports consisted chiefly of manufactured goods and food for the people. Heavy and basic industries were either totally absent or their development was totally inadequate.