Three Stages of Colonialism in India

At a Glance

• Stage 1 Merchant capital, 1757-1813
• Stage 2 Free trade, 1813 to the 1860s
• Stage 3 Foreign investment and rivalry, from about the 1860s
• Source A Marxist periodisation by Rajni Palme Dutt
• Exam link UPSC Prelims, Modern History: Economic Impact of British Rule

Where Does It Fit?

This is the tenth and last topic of the category on the economic impact of British rule. The previous topic covered the economic drain and the nationalist critique. This topic sums up the stages of colonialism. The next category begins with the development of the Indian press. Previous topic: Economic Drain and the Nationalist Critique.

What Are the Three Stages?

The fundamental character of British rule did not stay the same through its two centuries, as Britain’s position in the world economy changed. Marxist historians, especially Rajni Palme Dutt, identify three overlapping stages in imperialist rule in India. Each developed from the conditions of the previous stage, and the different modes of exploitation overlapped, old forms never entirely ending but being absorbed into new patterns. Each stage, however, had distinct dominant features and marked a qualitative change.

What Was the First Stage?

The period of merchant capital rested on two objectives: to gain a monopoly of trade with India against other English or European merchants and against Indian merchants, and to directly appropriate or take over governmental revenues through control of state power. In this period no basic change was made in the administration, judicial system, transport and communication, agricultural or industrial methods, business management or economic organisation, nor in education, culture or social organisation. Traditional Indian civilisation, religions, laws, caste and family structure were not seen as obstacles to exploitation.

The only changes were in military organisation and technology, which native rulers were also introducing, and in the administration at the top of the revenue structure, to make it more efficient. There was a large drain of wealth from India, about 2 to 3 per cent of Britain’s national income at the time, which played a role in financing Britain’s industrial revolution. There was no large import of British manufactures; instead exports of Indian textiles rose, though weavers were ruined by the Company’s monopoly and compulsion to produce for it under uneconomic conditions. This is the period of the Acts discussed in Pitt’s India Act: Board of Control 1793 to…">Constitutional Development 1773-1858: Regulating Act to the Act of 1858.

What Was the Second Stage?

The second stage, the colonialism of free trade, began with the Charter Act of 1813 and continued till the 1860s. After the Company became ruler over most of India there was a debate in Britain about whose interests the colony should serve. The new industrial capitalists criticised the Company and demanded that policy serve British capitalist interests, which differed from the Company’s. India was to be a market for rising British manufactured output, especially textiles, and a source of raw materials, especially cotton, and foodgrains. India could buy more only if it earned foreign exchange by exporting more. Exports of raw materials were increased sharply to meet the Company’s dividends, the profits of British merchants and the pensions of retired British officials.

The dominant features were the integration of the colonial economy with British and world capitalism through the removal of import duties, free entry for British capitalists to develop plantations, trade, transport, mining and industry with state help, the Permanent Settlement and Ryotwari systems, a more comprehensive administration reaching villages, reform of criminal law, contract law and procedure, modern education for cheap manpower and a culture of loyalty, a sharp rise in the tax burden, India’s absorbing 10 to 12 per cent of British exports and nearly 20 per cent of its textile exports, and the use of the Indian army for British expansion in Asia and Africa. These are discussed in One-Way Free Trade and the Tariff Policy and Deindustrialisation: Ruin of Artisans and Handicraftsmen.

What Was the Third Stage?

The third stage, the era of foreign investment and international competition for colonies, began around the 1860s because of changes in the world economy: Britain’s industrial supremacy was challenged by several European countries, the United States and Japan; the pace of industrialisation rose sharply with the use of scientific knowledge, such as petroleum for the internal combustion engine and electricity for industry; and the world market became more unified through the revolution in international transport.

In this stage Britain made strenuous efforts to consolidate its control over India. Liberal imperialist policies gave way to reactionary imperialist policies, as in the viceroyalties of Lytton, Dufferin, Lansdowne and Curzon. The strengthening of colonial rule was meant to keep out rivals and to attract British capital to India and give it security. A very large amount of British capital was invested in railways, loans to the Government of India and trade, and to a lesser extent in plantations, coal mining, jute mills, shipping and banking. The notion of training Indians for self-government vanished, to be revived only after 1918 under pressure from the national movement. The aim of British rule was now declared to be a permanent trusteeship over Indians, who were called permanently immature, a child people needing British control. Geography, climate, race, history, religion, culture and social organisation were cited to show Indians unfit for self-government or democracy, and British rule was justified for centuries ahead as civilising a barbaric people, the White Man’s burden. These policies are in Administrative Policies: Divide and Rule, Zamindars, Social Services and Labour Laws and the capital in Late Development of Modern Industry and Railways and the Growth of Trade.

As an analytical point, the three stages explain a pattern: the Company first took the revenue, British industry then took the market, and in the last stage British finance took the investment returns, each form of exploitation being added to the earlier ones, so that the burden on the Indian economy grew and changed its form. The summary of the economic impact: ruin of artisans, impoverishment of the peasantry, new land relations, stagnation of agriculture, commercialisation, late and uneven industry, a rising Indian bourgeoisie, the drain, famine and poverty, and a nationalist critique that India was getting poorer because of colonial exploitation and needed an independent economy.

Why Is This Topic Important?

• Periodisation A favourite Mains framework for colonial economic history
• Features of each stage Dates and names are Prelims-style facts
• Link to the earlier topics Summarises the whole category

What Came Next?

The next category begins with the development of the Indian press, covering early regulations and the struggle for freedom. Next topic: Development of the Indian Press: Early Regulations and the Struggle for Freedom.

Key People and Terms

• Merchant capital Capital engaged in trade, the first stage
• Colonialism of free trade The second stage, 1813 to the 1860s
• Finance capital Investment capital, dominant in the third stage
• Trusteeship The claim that Britain held India in trust
• White Man’s burden The claim of a duty to civilise
• Overlapping stages Old forms of exploitation absorbed into new

Exam Corner

Mains Angle

Questions ask for the stages of colonialism and their features. These points add depth.

• Stages Merchant, free trade, finance
• Features Policy and ideology
• Overlap Old forms absorbed