Economic & Commercial Policy Before Independence

The British conquerors were entirely different from the previous conquerors. Through laws and administrative, economic and fiscal policies, the British government in England and Company’s administration in India used their powers to the advantage of British manufacturers and to the detriment of the Indian socio-political and economic fabric.

Phases of Economic Policy in India


The East India Company was a purely trading company dealing with import of goods and precious metals into India and export of spices and textiles. 

1757-1813 (The Mercantilist Phase)

The East India Company monopolized trade and began direct plunder of India’s wealth. They could impose their own prices that had no relation to the costs of production. This was the phase of buccaneering capitalism whereby wealth flowed out of the barrel of the trader’s guns.

The company used its political power to monopolize trade & dictate terms to the weavers of Bengal. It used revenue of Bengal to finance exports of Indian goods.

1813-1858 (The Industrial Phase)

The commercial policy of the East India Company after 1813 was guided by the needs of the British industry. The British mercantile industrial capitalist class exploited India as Industrial Revolution in Britain completely transformed Britain’s economy.

Charter Act of 1813 allowed one way free trade for British citizens resulting in Indian markets flooded with cheap and machine made imports. Indians lost not only their foreign markets but their markets in India too.

India was now forced to export raw materials consisting of raw cotton jute and silk, oil seeds, wheal, indigo and tea, and import finished products. Indian products had to compete with British products with heavy import duties on entry into Britain.

1860 and After (Finance Colonialism)

The essence of 19th century colonialism lay in the transformation of India into a supplier of foodstuffs and raw materials to the metropolis, a market for metropolitan manufactures and a field for investment of British capital. It started with the emergence of the phase of Finance Capitalism in Britain. The rebellion of 1857 was the key factor in the change of the nature of the colonialism. 

The British introduced roads and railways, post and telegraph, banking and other services under the ‘guaranteed interests’ schemes (government paid a minimum dividend even if profits were non-existent). Various investments by the British capitalists were also made in India. As a result of this, the burden of British public debts kept on increasing and India became, in the real sense, a colony of Britain.

Land Revenue Systems

Permanent Settlement

This system was introduced in Bengal, Bihar, Orissa, and districts of Benaras & Northern districts of Madras by Lord Cornwallis in 1793. John Shore planned the Permanent Settlement.

It declared Zamindars as the owners of the land. Hence. they could keep 1/11th of the revenue collected to themselves while the British got a Fixed share of 10/11th of the revenue collected. The Zamindars were free to fix the rents.

Assured of their ownership, many zamindars stayed in towns and exploited their tenants. 

Ryotwari System

This system was introduced in Bombay, Madras and Assam. Munro (Viceroy) and Charles Reed recommended it. In this, a direct settlement was made between the government and the ryot (cultivator).

The revenue was fixed for a period not exceeding 30 years, on the basis of the quality of the soil and the nature of the crop. It was based on the scientific rent theory of Ricardo.

The position of the cultivator became more secure but the rigid system of revenue collection often forced him into the clutches of the moneylender. Besides, the government itself became a big zamindar and and retained the right to enhance revenue at will while the cultivator was left at the mercy of its officers.

Mahalwari System

This system is the modified version of Zamindari settlement introduced in the Ganga valley, NWFP, parts of Central India & Punjab. Revenue settlement was to be made by village or estates with landlords. In western Uttar Pradesh, a settlement was made with the village communities, which maintained a form of common ownership known as Bhaichara, or with Mahals, which were groups of villages. Revenue was periodically revised.

Colonial Impact of Land Revenue Systems

  • The land settlements introduced market economy and did away with customary rights. Cash payment of revenue encouraged money-lending activity.
  • It sharpened social differentiation. Rich had access to the courts to defend their properly.
  • Forcible growing of commercial crops proved hazardous for the peasants because they had to buy food grains at high prices and sell cash crops at low prices.
  • The stability of the Indian villages was shaken and the setup of the rural society began to break up.