National Economics: India


Figure 1.--The result of the free market economic reforms begun in the 1990s has been an enormous expansion of the Indian economy and growth of a prosperous middle class. India's economy today is probably the most diverse in the world. There is traditional village farming almost untouched by the modern world. The photo shows an Indian peasant family in 1987. It was taken in Kudle, a village in Karnataka. At the time the village had no contacts with the western culture. The image shows the priblenn India faces. The family farmsxa small polt of land. But if the father divides it among his sons, it could not support families. Thus the younger children are forced into the cities to seek jobs.

Trade between Europe and India was well developed in ancient times. Just as China as noted for porcelin and silk, India was note for metalurgy and cotton. The Europeans had the same difficulty with the Indian trade that that that with China. The Chinese and Indians had many items the Europeans coveted, but relatively little too offer with the exception of gold and silver bullion. Important Indin trade goods were colorful cotton textiles. Cotton was a fabric not widely available in Europe until the 18th century. The Arab outburst and conquest of the Middle East (7th century) cut Europe off from India for eight centuries--almost a millenium. The Portuguese restablished contact with India (15th century). By this time the country was divided into many principalities, but still produced many valuable trade goods. The Europeans gradually expanded their footholds in India culminating in the struggle between Britain and France during the Seven Years War to control the Subcontinent. This led to the creation of the British Raj. The impact ot the Raj is still a widely debated topic in India. A united India, the English ;anguage, and democracy are three primary impacts, all with economic consequences. In more direct economic terms, the British brought modern technology and created the foundation of India's modern infrastructure. The British were interested in markets for the expanding output of the Industrial Revolution. This undercut domestic production which was largely handicrafts, thus adversely affecting the livlihoods of many Indians. The British also failed to deal with a terrible famine in Bengal. The British also implanted the foundation for a robust free market econonomy. This foundation was largely unappreciated by India's leaders at indeoendence. Ghandi was a champion of handicraft most notably domestic spinning and homespun textiles. Nehru and other Congress leaders were impressed with Soviet development and pursued statist solutions to development. Thecresultwas large state-owned industries which were inefficent and uncompetitive on the international market. The state industrues and huge beaureacracy proved an enormous drag on development. Ecoonomic reforms begun in the 1990s have begun to unleash the power of the free market. The result has been an enormous expansion of the Indian economy and growth of a prosperous middle class. India's economy today is probably the most diverse in the world. There is traditional village farming almost untouched by the modern world along with modern agriculture. There is handicrafts production alongside modern industries. There is also a large, increasingly sophisticated services sector. Much of the growth of the economy in recent years has come in the services sector which is responsible for about half of GNP using less than one third of the labor force.

Anicent Economy

Perhaps the least studied of the great rivel valley civilizations is ancient India. Trade between Europe and India was well developed in ancient times. Just as China as noted for porcelin and silk, India was note for metalurgy and cotton. The Europeans had the same difficulty with the Indian trade that that that with China. The Chinese and Indians had many items the Europeans coveted, but relatively little too offer with the exception of gold and silver bullion. Wine was one European product that was popular, but expensive to transport all the way to India. Important Indian trade goods were colorful cotton textiles. Cotton was a fabric not widely available in Europe until the 18th century.

The Arabs

The Arab outburst and conquest of the Middle East (7th century) cut Europe off from India for eight centuries--almost a millenium. Allk trade was conducted through Arab middlemen. This increased the cost of goods and thus was a damper on trade. The Arabs beginning in the 8th century dominated the Indian Ocean, especially the Arabian Sea. This meant that they controlled the lucrative commerce with the Orient. Thiswas decisively ended at the Battle of Diu (1509). Diu was the beginning of Portuguese domination of the Indian Ocean and made possible the development of the Portuguese Empire. The Portuguese victory was made possible by the increasing European technological advances and the failure of the Arabs to promote modern science and other secular thought unrestrained by religious orthodoxy.

The Mughal Empire (1526-1707)

The name ‘Mughal’ became synnomanous with both wealth and opulence. The wealth of the Mughals is a matter of legend. And the word entered the English language meaning an important, powerful, or influential person. The Mughal Empire at its peak encompased Pakistan and most of modern India except for the far south. A significant area of land areas were brought under the control of a entities like the Suris, the Lodhis or the Mughals. The Grand Trunk Road was built as well as the Taj Mahal and the Fatehpur Sikri. Substsantial urbanization began. India nationalist see the Mugal Empire as the Golden Age of India. The country was prosperous and productive. Queen Elizabeth I for good reason envied the wealth of Empire and wrote to the Emperor Akbar anxious to begin trade (1583). The seat of power of the Mughal empire was the "Peacock Throne." It had in it background an image of a peacock with an expanded tail wrought in gold and precious stones. It is difficult making precise comparative estimates. We suspect that Akbar was the wealthiest man on earth. Whether his subjects were better off than Europeans we are not sure, they may well have been. The Indian economy supported a population of 100-150 million people. [Habib] At the time Englnd had a population of about 4 million and France, historically Europe's most populace country, perhaps 20 million. India It was like all countries at the time an agricultural economy, but it looks like there was more manufacturing in India than in Europe. Agricultural technology was comparable to that of Western Europe. Several analysts suggests that even small sale subsistence peasant got a reasonable return and overall living standards were comparable to the West. One analyst writes, "... at its peak, it is conceivable that the per capita product was comparable with that of Elizabethan England.” [Maddison, p. 18.] Other authors provide similar assessments. [Moreland] There is no doubt that India large and skilled manufcturing labor force. They produced not only cotton textiles, and metal products, but also luxuries and beautiful buildings for the for the Mugul ruling class. As a result revenue collected by the Muguls was astonishing. One author reports that yearly revenue of the absoluteist Mogul emperor Aurangzeb (1659-1701) witing in 1982 may have amounted to $450 million -- ten times those of (his contemporary) big-spending absolutist ruler Louis XIV. [Kautsky, p. 188.] Indian nationalists see this as a sign of strength. In fact it was a clossal weakness. The wealth of the Empire as kept out of the hands od an industrious and hard working people. Just compare how England with a parliament to limit royal spending consistently bettered the mich larger and potentially more powerful France with its royal absolutism. India was undeniably rich, but like the rest of Asia did not experience the Renaissance, Reformation, and Enligtenment which together produced modernity. India invented modern mathmtics and achieved technological advances, but it did not invent modern science and all the achievements that followed. And it did not invent either capitalism (economic freedom) and democracy (political freedom). Remembers the Muguls were not a medievl dynasty. They seized power at the dawn of the modern age, but did not lead India toward modernity. Indian nationalists want to blame all of India's problems on the British. What in fact was the central cause was that the Muguls not only did not use their fabulous wealth to build a modern society and kept much of the wealth way from their industrious people who might have achieved modernity like Europeans.

European Outreach

It was the products of the East (India, Spice Ialands (Indonesia), and China that launched the European voyages of discovery. The Ottomans and Arabs blocked direct trade and the Europeans wanted direct access to the East. The Portuguese first rerestablished contact with India (16th century). This early form of globelization actually stimulated the Mugul economy. Over time the Muguls declined and the sub-continent was divided into many principalities, but still produced many valuable trade goods. An Indian source on the maintains that India in the 18th century was "... a prosperous nation .... During this period, India bettered it's economic status in the major areas like food and crop production, textiles, glass and metallurgy. The per capita income was also raised to a comfortable limit." The Europeans gradually expanded their footholds in India culminating in the struggle between Britain and France during the Seven Years War to control the Subcontinent. Indians like to blame the Europeams, especially the British, for their problems. In fact, it was simply that the Europeans that forst developed modernity and that there were aspects of Indian traditional culture that resisted modernity. Notice how rapidly the Asian Tigers achieved success once they embraced modernity. This did not occur in India.

British Rule

The British victory in the Seven Years War led to British rule which was divided into two parts. The first part was control by the British East India Company (1760s-1858). The second period was direct or crown rule, commonly called the Raj. It was brought on by the Great Mutinty. The British role in India is commonly an assessment of the Raj because it was during this period that Britain exerted the greates influence on India. Earlier the British rule through Indian rulers and had only a limited impact on India. With the Raj and direct rule, the British impact was profound. The impact of the Raj and British rule in general is still a widely debated topic. A united India, the English language, and democracy are three primary impacts, all with economic consequences. In more direct economic terms, the British brought modern technology and created the foundation of India's modern infrastructure. The British after establishing their predominante position, introduced new trading policies. The British were not only interested in Indian resources, but markets for the expanding output of the Industrial Revolution. This undercut domestic production which was largely handicrafts, thus adversely affecting the livlihoods of many Indians. Indian farming and industry (especially textles) suffered. The result was increased imports rather than domestic production and exports. One Indian source cliams that about $1 trillion was shifted from India to Britain and the rest of the Empire. We are not at all sure about this. We have seen Indian authors make outrageous claims based on anti-British sentiment rather than factial basis. It should be understood that the British did not create poverty. Poverty in India was nothing new. It was basically due to inefficent agricultural methods resulting in low crop yields and essentilly handicraft industry, also highly ineffucent. Many Indians blame the British for destoying India's handicraft industry. This was Ghandhi's view. It is why he insiusted on spinning his own thread and the spinning wheel is at the center of the Indian flag. Given the low yields of traditional agriculture and inefficency of handicraft indiusyrty, they and not the British assigned India to perpetual poverty. It was modernity that destoyed India's handicefat industries. The British were the agent, but it was inevitable. Along with moderhty the British brought modern technology (most important the railroads), an education system, a common language, a banking system, democracy, capitalism, and the rule of law. Interestingly the Indians accepted part of this heritage more readily than much of the rest of the Empire. The British for all their mistsakes implanted the foundation for a robust free market econonomy. What it was slower to accept was capitalism, but it is difficult to criticize as Britain and much of Europe at the time of Indian independence was also embracing socialism. The British began moving toward home rule in the early-20th century. There were many incidents in which the British used force to maintain the Raj. Most were relatively small emcounters. The most serious was at Amritsar(Jallianwalla Bagh) (1919). The most inexcusable British action of the Rak occured at the end--the British failed to deal with a terrible famine in Bengal during World War II. The British and americans saved Indis from the rapacious Japanese, but severa millions Indians died in the famine, perhaps 4 million. The Congress Party has to share some reponsibility for the pressure they put on India, but the Nengal and earlirr Irish fmine are surely the blackest marks on British imperial rule.

Independence and Statism (1947-80s)

India achieved independence after World War II (1947). India's new leaders at independence accepted the importance of democracy. Economic development was a very high pripority for India's new government. The economy they inherited was diverse, but still inclded many trditional elements using technologies unchanged for centuries. India's new leaders, however, failed to appreciate the power of free market capitalism. Ghandi was a champion of handicraft most notably domestic spinning and homespun textiles. (The flag of India includes the spinning wheel.) Nehru and other Congress leaders were impressed with Soviet development and strongly influenced by socialist thought. As a result, they pursued statist solutions to development. At independence, the new Indian Government established a Planning Commission was set up to plan and control Indian economy--the Indin version of Stalin's Five Year Plan. And a Five Year Plan was developed to launch arange economic policies and industrilization. The first plan primarily aimed at developing agricultural and industrial sectors. The Soviets helped build a steel industry. The result of this and subsequent Five Year Plans was large state-owned industries which were both inefficent and uncompetitive on the international market. The state industrues and huge beaureacracy not only failed at developing the Indian economy, but proved an enormous drag on the economy. The expected rapid development of the country with independence did not occur to the consternation of India's leaders. They so fervenly believe in socialism and were conviced that it had been the British that were impeding the country's developmernt. And after more than four decades of independence, India remained poor and backward in comparison not only to Europe, but many other asian countries. The Asian Tigers Singapore, South Korea, and Taiwan which adopted free market economic policies, in prticulr, achieved spectcular growth in contrst to India's stagnnt economy.

Free Market Economic Reforms (1990s)

Ecoonomic reforms designed to liberalize have begun to unleash the power of the free market. The economic environment did not change when Indira Gandhi became a mager force in the Congress Party. She was the only child of Pandit Nehru and led the Socisalist-wing of the Congress Party. The electoral successes of Mrs. Nehru during the 1870s and 80s is testimony to how widely held were socialist ideology throughout India. The Indian government nationalized foreign companies, specifically the petroleum companies and banks. The State Bank of India became the parent organization for other banks in India and all the banks were under the control of Reserve Bank of India. The economic liberalization began when P.V. Narasimha Rao became prime minister (1991). The freee market reforms he pursued were at first controversial. The reforms, however, turned a stagnant economy into one of the world's fastest growing. There continues to be populist resistance to the reforms and ceven a small Maoist guerill movenrnt. For Most Indians, hiowever, the free market reforms havevbeen an enormous success.

Modern Economy

The result of the free market economic reforms has been an enormous expansion of the Indian economy and growth of a prosperous middle class. India's economy today is probably the most diverse in the world. There is traditional village farming almost untouched by the modern world along with modern agriculture. There is handicrafts production alongside modern industries. There is also a large, increasingly sophisticated services sector. Mich of the growth of the economy in recent years has come in the services sector which is responsible for about half of GNP using less than one third of the labor force.

Street Children

Along with all the striking economic successes of modern India, the country continues to have an enormous problem--street children. This is not a problem created by the free vmarket economy. It was problem that has developed as a result of urbanization, especially the vey rapid growth of urbzanization since independence. The driving vforce has been rural poverty. India has the largest population of street children in the world. UNICEF estimates the number at over 11 million and this may be a conservative estimate. Large cities like Mumbai, Calcutta, and Delhi are believed to have populations of street children exceeding 0.1 miilion. These children have either run away from their families are been ejectedcby them. Many fathers refuse to restrict the number of children they create even though they do not have the ability to care for them. There are also orphans or children living on the street with their families. There tend to be twice as many boys on the streets as girls because even poor families are reluctant to eject girls. And girls can be placed as servants with more affluent families. Some of the children join organized gangs that beg, sing and perform, clean trains, pick pockets, steal or peddle drugs. Almost half despite their age, enter the work force as self-employed individuals. They sell flowers or other goods, work as rag pickers, at tea stalls, as porters and loaders, on catering assignments, as hawkers or other kinds of casual work. This often means working long hours, as much as 10 to 12 hours a day. Many Non-Governental Organizations (NGOs) run shelters or organize employment or recreation activities for the children. The Christian Church is especially active. We are unsure just whst the Government is doing or what impsct the shidt vto free market economics has had on this problem.

Sources

Habib, Irfan. Habib estimates the population of Mugul India at about 150 million, higher than many other analysts. Irfan Habib. “Potentialities of capitalist development in the economy of Mughal India”, Journal of Economic History, vol. 29, no.1, pp.32-37.

Kautsky, john. The Politics of Aristocratic Empires (University of North Carolina Press: Chapel Hill, 1982).

Maddison, Angus. Class Structure and Economic Growth: India and Pakistan since the Moghuls (George Allen and Unwin: London, 1971). Reprinted by Routledge in 2013.

Moreland, W.H. India at the Death of Akbar (A Ram: Delhi, 1962). Moreland provides a insightful description of Indian living conditions at the end of the 16th century.











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Created: 5:40 PM 12/7/2009
Last updated: 12:41 AM 4/27/2016