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Economic History Association

The Political Economy of the Raj: The Decline of ColonialismAuthor(s): B. R. TomlinsonReviewed work(s):Source: The Journal of Economic History, Vol. 42, No. 1, The Tasks of Economic History(Mar., 1982), pp. 133-137Published by: Cambridge University Press on behalf of the Economic History Association

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The Political Economy of the Raj:The Decline of Colonialism

B. R. TOMLINSONTakinga fresh look at the institutionsof economicmanagementn colonialIndiaexplains much about the history of the last decades of the raj. The concept ofpolitical economy-the interaction of economic forces and political choices-provides a useful approachto the study of governmenteconomic policy andpracticethat can give a new perspectiveon the historyof the late British Empireas a whole.

THE economic historiography f the British Empire s at presentin aconfused and confusingstate. This is especiallytrue of thatperiodwhich saw the decline of colonialism, the first half of the twentiethcentury.There are two majordifficulties.The firstis thatthe old notionof a distinct imperial economy has collapsed in recent years, andresearchershave preferred o seek the key to imperialeconomichistoryelsewhere-in the local economies of the dependentterritories,in themetropolitaneconomy of Britain, or in the internationaleconomy ofwhich both Britainand hercolonialpossessions were merely particularlocalized expressions.1The second is in tryingto relate the explanationsof the end of the Britishempirethat dealwitheconomicmattersto thosethat deal with political ones.2One solution that has become increasinglypopularfocuses attentionon the political economy of the Empire-the interaction betweeneconomic forces andpoliticalchoices in territoriesbound to Britainbysome formal tie. It has even been suggestedrecentlythatthis approachoffers "the best evidence for a unified field theory of the British

Journal of Economic History, Vol. XLII, No. 1 (March 1982). ? The Economic HistoryAssociation.All rightsreserved.ISSN 0022-0507.The author is Lecturerin the Departmentof Economic and Social History, University ofBirmingham,P.O. Box 363,Birmingham 152TT, UnitedKingdom.This essay is a summaryandrestatementof some of the major hemesof the author'srecentbook on the relationshipbetweeneconomic changeand the endingof colonial rule in India,ThePoliticalEconomyof theRaj 1914-1947: the Economicsof Decolonization n India(London, 1979).Thepreparation f the essay hasbeen greatlyhelpedby Tony Hopkins'scommentson an earlierdraft; he bookowed muchto theencouragement ndinspirationof JackGallagher,Leslie Pressnell,and Anil Seal.l For moreon this see A. G. Hopkins,"ImperialConnections" n TheImperial mpact:Studiesin the EconomicHistoryofAfrica andIndia, ed. CliveDewey andA. G. Hopkins London,1978).

2 This problemis not confinedto imperialeconomic history:as Paul Uselding has recentlyremindedus, economichistoriansas a whole are "once againresorting] to the incorporation fsocial and institutional actors in their interpretation f events in the tableauof the economic-historicalpast"; PaulUselding,ed., Researchin EconomicHistory,Volume5, 1980 (Greenwich,Connecticut, 1980),p. vii. 133

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134 TomlTnsonEmpire," since "the institutionsof economic management, he terms oftrade, the broad conditions of the international economy, and thestandardization f data throughstatistics,allow for comparisons."3Thetermpoliticaleconomy, however, cannot be used as a magic talisman: trequiresfurther specification to be a useful tool. In imperialeconomichistory it is government policy and official institutions that offer themost promisingsubjects for refining he approachand demonstratingtsvalue. The example of India makes an especially good case study, forthe British raj was one of the longest-lasting and institutionally mostcomplex of colonial administrations.In examiningthe relationshipof economic realities to political practi-calities in officialpolicy making n India the firstpriority s to isolate theinterests the policy was intended to serve. "What is the purpose ofBritish rule in India?" was not a question of much interest to themajority of colonial bureaucrats, and yet the trend of their actionsshowed that they did have an answer to it. Governmentpolicy, at leastthe "high policy" made on the telegraph wires between London andNew Delhi, was meant to secure a narrow range of objectives ofparticular nterest to government tself, and in the attainmentof whichgovernmentaction was all-important.Thislowest common denominatorof official concern can be termed India's "imperialcommitment,"theirreducible minimum hat the subcontinentwas expected to perform nthe imperialcause. Thecommitmentwas three-fold: o providea marketfor Britishgoods, to pay interest on the sterlingdebt and other chargesthat fell due in London, and to maintaina largenumberof Britishtroopsfrom Indianrevenues and make part of the local armyavailable as an"imperialfirebrigade."

Duringthe last decades of the rajcontradictionswithin the imperialcommitmentreleased a maligndialectic of theirown. Fromthe Indianperspective, imperialcommitmentsdependedon the twin foundationsof Britishrule-political consent and publicrevenue. Each arm of theimperialcommitmentcost the governmentof India dear and divertedIndianresources into the pocketsof Britishbusinessmen,bond-holders,and taxpayers. At the same time the relative poverty of the Indianeconomy limitedthe amountthat could be extracted,while the Britishbureaucracywas convincedthat the secret of successful government nIndia lay in low taxation.4 From the 1860sonwards India followed apolicy of financial and administrativedecentralization or fiscal as wellas politicalreasons. By 1919 he centralgovernmenthad surrenderedtsrights over the staple Land Revenue to provincialadministrationsn an3W. Golant, "Review Article: Imperialism nd India," History, 66 (Feb. 1981),65.4 As Lord Canningpointed out in the early 1860s, "I would rathergovern India with 40,000Britishtroops without an income tax than governit with 100,000British roopswith such a tax";quoted in A. D. D. Gordon,Businessmen and Politics: Rising Nationalism and a Modernising

Economyin Bombay, 1918-33 . .. (New Delhi, 1978),p. 11.

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Political Economy of Raj 135attempt to buy the politicalpeace needed to expandthe tax base. In theinterwar years the government almostentirelydepended on tariffsandincome tax for any significant ncrease in revenue.Customs duties wereraised repeatedly, indirecttaxes being much easier to collect and alsopolitically more popular. Ultimately local revenue needs severelydamaged India's role as a market for British goods.5 Over the sameperiod the governmentfoundit increasinglydifficult o keep its militaryestablishmentup to strength.In the greatcrisis of imperialdefense from1939 onwards, as in 1914-1918,the Britishgovernmentwas forced totake over financialresponsibilityfor much of India's war effort.6The financialproblemsthat the governmentin London faced werecaused by competition between imperialand domestic interests forscarce resources. The difficultiescreated by India's sterlingpaymentswere of a different order and represented one of the most intractableproblems for British policy after 1919. It has been suggested that thepayments of interest and principal on loan capital, and the HomeCharges, represented"the most important vested interest' of Britain nIndia" between the wars.7 The payments,however, were more signifi-cant for British taxpayers than for British bondholders. During theeconomic crisis of the early 1930s the British government becameconvinced that it could not avoid makinggood the paymentsshould thegovernment of India default, and that this would severely damageinternationalconfidence in sterling as well as the politicalcredibilityofthe Indian authorities.The result was that the Secretaryof State forIndia,tryingto reconcile "the demandsof politicalexpediencywiththeneeds of stable finance" in the drawingup of a new constitution,wasencouraged to make sure that the creation of an Indianfinance ministerresponsible to a popular assembly would not lead to a real transfer ofauthority over external financial policy.8 The compromise made itdifficultto seek new political support in Indiaby financialor constitu-tional concessions.9 No real progresscould come until 1945, by whichtimethe novel arrangements orfinancing ndia'sparticipationn World

5See I. M. Drummond,British EconomicPolicy and the Empire1919-1939 (London, 1972)chap. 4.6 See B. Prasad,Defense of India: Policies and Plans (Calcutta,1963),chap. 1.7 RajatK. Ray, Industrializationn India: Growthand Conflict n thePrivateCorporateSector1914-47(Delhi, 1979),p. 7. This characterizations based on the "financialmperialism"hat someauthorshave seen at work nIndia n theinterwar ears;see R. PalmeDutt, India Today Bombay,1940).8 Sir SamuelHoare to Lord Willingdon,20.10.32,in TemplewoodPapers, vol. 2, IndiaOfficeRecords.9 As an India Office officialpointed out late in 1930, "the financialstake of His Majesty'sGovernmentand the British people in India remains,for all practicalpurposes,as a permanentobstacle to anything hat could reasonablybe termed inancial elf-government"; rivatenote byC. K[isch] Dec. 1930 n IndiaOfficeFinance Departmentile L/F/7/2396,FinanceCollection381,

IndiaOffice Records.

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136 TomlinsonWar II had resulted in the repayment of all the old debt and theacquisition of sterling balances four times as large.

Throughout the first half of the twentieth century British rulers inIndia were constantly under pressure to admit that their economicpolicy was designed to favor foreign interestsat the expense of Indianones. By the interwarperiod native critics of the colonial governmenthad refined the old nineteenth-century ritiques of the draintheoryandthe swadeshi movement into an attack upon imperialcosts, the rupeeratio, and tariffpolicy. Thusthe eyes of the economic nationalistswerefirmly fixed on what we have termed India's imperial commitment.There can be no doubt that the particular interests of the colonialgovernment determinedthat the main lines of its day-to-dayeconomicpolicy should encourage the externally-orientedsectors of the localeconomy at the expense, if necessary, of the internally-oriented nes.This was a plausible policy so long as it seemed likely that theinternationaleconomy's influence on India was benign, or could bemade so by improvements in native economic institutions. In theinterwaryears, however, this view became increasinglyhardto sustain.Yet the colonial governmentwas still committedto its externalobliga-tions and, however reluctantly, saw these as an inescapable firstpriority.Thus, when in the late 1920sthe governmentof Indiawas facedby a shortage of remittance to meet its obligationsin London, it wascompelled to withdrawcurrencynotes fromcirculation n India n orderto makeexchange from the currencyreserves in Londonavailable o theSecretary of State. The action unfortunatelyexacerbated the tightmoney andcapital scarcitythat hadcausedthe shortageof remittance.10The difficultiesof the domestic credit-distributionystem at the time,which were certainly not eased by the actiongovernment ook to meetits own obligations,were in turn a majorcause of the dislocations in thedomestic economy, leading to widespread discontent and politicalprotest in the 1930s. 1In realitythe rajwas fast runningout of roominwhich to maneuver. 2The colonial administration hat had developed in India in the late-

10 For more on this aspect of government emittancepolicy see B. R. Tomlinson,"Britainandthe IndianCurrencyCrisis, 1930-32,"EconomicHistoryReview,2nd ser. 32 (Feb. 1979), 88-99and "Britainand the IndianCurrencyCrisis, 1930-2:A Reply," EconomicHistory Review, 2ndser. 33 (May 1981), 305-07." On this see Christopher . Baker, ThePolitics of SouthIndia1920-1937 Cambridge,1976),pp. 170-84. For a survey of recent approaches o the problemof relatingpoliticalmobilizationoeconomicchange n this periodsee B. R. Tomlinson,"Congressandthe Raj:PoliticalMobilisationin Late-Colonial ndia," ModernAsian Studies(forthcoming).

12 For parallel reatmentsof some of the themesthat follow see ChristopherBaker,"ColonialRuleand theInternalEconomy nTwentiethCenturyMadras"andD. A. Washbrook,"Law,Stateand Society in ColonialIndia"in Power,Profitand Politics:Essays on Imperialism,Nationalismand Change in Twentieth-Centuryndia, ed. ChristopherBakeret al. (Cambridge, 981)reprintedfromModernAsian Studies, 15 (July1981).

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Political Economy of Raj 137nineteenth and early-twentieth centuries was conditional on the exis-tence of a certain type of local and international conomy. Before 1914the colonial administrationhad provided useful linkages between theIndian, British, and international economies and had successfullymaintained an export-oriented free-trade system. Subsequent eventswere to show that the rajcould only operate successfully in an economicenvironment providingadequate tax revenue and a foreign exchangesurplus on private transactions. Such a system was also the only onethat could be run on the laissez-faire principles that the colonialauthorities saw as the foundationof economic management.After 1929and especially after 1939this aim became increasinglyhard to achieve.Global depression and war broke down the established systems ofmarketingandcredit-supplywithin India, and damaged he mechanismsby which food and raw materialswere extractedfrom the ruralareasand exchanged for consumergoods and bullion rom the towns and fromthe internationaleconomy. In attempting o repair he damage, govern-ment was sucked into a new relationshipwith the domestic economyand was forced to improvise institutions to allocate scarce goods,capital, and foreign exchange among competingnative interests. Oper-ating a governmentof this type requireda much more sensitivepoliticalsystem than the colonial administrationcould provide. The Britishadministration's ailure to run the economy of Indiaeffectively duringthe war and in the immediate postwar period helped to intensify thenationalisticandcommunalpassions that were alreadypushing nexora-bly towards Partition and the transfer of power. By 1947, since thelimitations of imperialcommitmentno longer applied,the Britishwereresigned to this course, seekingthe best possible bargainwith successorgovernmentswhich had the politicalrootsnecessaryto run the interven-tionist economic system now required.The decline of colonialism in India cannot be understoodproperlywithout an awareness of both economic andpoliticalfactors. Studyingofficial institutions is useful, althoughgovernmentpolicy by itself doesnot provideall the answers. The best way of puttingpolicy into a largercontext is by lookingat the areas where economic realities andpoliticalpracticalitiesmet and interacted.The concept of political economy canbe used to give a fresh perspectiveof the dynamicsand constraintsthatunderpinned he economic historyof the Britishempire n the twentiethcentury.