Second Phase of British Colonialism

The ‘Second Phase’ is generally seen to have begun with the charter Act of 1813, when the Company lost its monopoly trading rights in India, and ended in 1858, when the British crown took over the direct control and administration of all British territory in India.

As the Company’s profits grew, the support they enjoyed from the British government became precarious. Earlier many members of the parliament had ‘East Indian’ interests, who used the Company’s resources to maintain their patronage within the government. But as unprecedented levels of industrialization were achieved in Britain, there was a gradual change in the constitution of the parliament.

Adam Smith’s book, An Inquiry into the Nature and Causes of the Wealth of Nations, heralded a new school of economic thought, which critiqued the idea of companies enjoying exclusive monopolies and lobbied for a government policy of ‘free trade’ or ‘laissez faire’. In a bid to acquire greater control over the Company’s earnings, the parliament started attacking individual Company officials with charges of ‘misconduct’.

The ‘Free Traders’, dominant in the parliament with the turn into the 19th century, demanded free access to India, which led to the passing of the Charter Act of 1813, thus ending the monopoly enjoyed by the Company in India, while subordinating its territorial possessions to the overall sovereignty of the British crown.

‘Free Trade’ changed the nature of the Indian colony completely, through a dual strategy. Firstly it threw open Indian markets for the entry of cheap, mass-produced, machine-made British goods, which enjoyed little or almost no tariff restrictions. The passage of expensive, hand-crafted Indian textiles to Britain, which had been very popular there, was however obstructed by prohibitive tariff rates.

And secondly British-Indian territory was developed as a source of food stuff and raw material for Britain, which fueled rapid growth in its manufacturing sector, crucial to the emergence of a powerful capitalist economy. These changes reversed the favourable balance of trade that India had enjoyed earlier.

This phase laid the foundations of a classic colonial economy within India through the complex processes of commercialization of agriculture and deindustrialization.