Rise of Modern Industries in British India
An important development of the second half of the nineteenth century was the establishment of large-scale, machine-based industries in India — though this remained confined mainly to the plantations and a handful of consumer-goods industries such as textiles, with only limited development in mining sectors like coal and iron. Barring the textile industry, ownership of these enterprises was predominantly European, and mostly British. In fact, India’s modern industrial development began only once Britain had accumulated sufficient surplus capital at home that needed profitable outlets abroad — and India, with its cheap and plentiful labour, offered exactly such an outlet. This article traces the origins, features, and major sectors of modern industrial development in colonial India, a key theme for UPSC History Optional aspirants studying the economic transformation of British India.
Why Britain Developed Modern Industry in India
India’s industrialisation was, in the first instance, started by British capitalists, whose profits were drawn out and delivered back to the home country. Indian capitalists were initially shy of entering the field, and once they did, they faced heavy odds — so industrial progress in India remained very slow.
- The First World War (1914–1918) provided a genuine opportunity for industrial growth in India, since foreign competition was eliminated during the war years and the need was felt to produce many articles locally. Even so, industrial development during this period remained extremely lopsided regionally — Indian industries were concentrated in a few regions and cities, producing sharply unequal development across the country.
- The Second World War (1939–45) opened a genuinely new phase in India’s industrial development: imports were restricted, wartime demand for materials surged, and the government assured protection to many industries even after the war ended — all of which helped expand modern industry through the war years.
Britain’s decision to develop modern industry in India rested on several converging reasons:
- British capitalists and investors were drawn by the prospect of high profits; labour was extremely cheap, and raw materials were readily and inexpensively available.
- The climate of certain parts of India suited specific industries, and India — together with its neighbours — offered a ready market for many manufactured goods. Products such as tea, jute, and manganese enjoyed ready demand the world over.
- At the same time, profitable investment opportunities at home in Britain were growing scarcer, even as the colonial government and officials stood ready to extend every help and favour.
- Since the British spent heavily on transporting raw materials from India to England and manufactured goods back from Britain to India, they eventually judged it more profitable to establish some — especially heavy — industries in India itself.
- Educated Indians and national leaders, particularly after the founding of the Indian National Congress, demanded industrialisation of India along modern lines; the British gradually and somewhat reluctantly began some modern industries to placate this demand.
- During the two World Wars, it was neither safe nor easy to import or export goods to and from India — adverse political and military circumstances effectively compelled the British to start some modern industries to meet their own military, administrative, and civilian requirements.
- The British were also well aware that the Indian people’s economic condition was already poor; they feared that letting it worsen further would fuel the rapid spread of nationalism and national awakening.
Features of Industrialisation
Monopoly of Foreign Capital
- Most modern Indian industries were owned or controlled by British capital, which easily overwhelmed Indian capital across most sectors. Only in the cotton textile industry did Indians hold a large share from the very beginning, and only in the 1930s did Indians develop the sugar industry.
- Indian capitalists had to struggle from the outset against the dominance of British managing agencies and British banks. To enter almost any field of enterprise, an Indian businessman had to work around the English managing agency already dominating that field, and in many cases, even Indian-owned companies remained under the control of foreign-owned managing agencies.
- Indians also found it difficult to secure credit, since most banks were dominated by British financiers — and even when loans were available to Indians, they came at high interest rates, while foreigners could borrow on far easier terms. Gradually, however, Indians began developing their own banks and insurance companies.
- In 1914, foreign banks held over 70% of all bank deposits in India; by 1937, their share had fallen to 57%.
- British enterprise in India took full advantage of its close connections with British suppliers of machinery and equipment, shipping and insurance companies, marketing agencies, government officials, and political leaders — all of which helped maintain its dominant position in Indian economic life. The Government, moreover, followed a conscious policy of favouring foreign capital over Indian capital.
Partial Railway Policy of the British Government
- The railway policy of the British Government also discriminated against Indian enterprise — freight rates were structured to encourage foreign imports at the expense of trade in domestic products, making it costlier and more difficult to distribute Indian goods than imported ones.
Absence of Heavy or Capital Goods Industries
- A serious weakness of Indian industrial effort was the almost complete absence of heavy or capital goods industries. India had no large plants to produce iron and steel, or to manufacture machinery — engineering industries were represented only by a few petty repair workshops, and metallurgical industries by a handful of iron and brass foundries.
- India’s first steel was produced only in 1913, and the country lacked such basic industries as steel, metallurgy, machine manufacturing, chemicals, and oil. India also lagged behind in the development of electric power.
Maximum Profits Flowed to England
- Plantation and other foreign-owned industries brought Indians relatively little advantage. Their profits flowed out of the country, a large share of their expenditure went towards foreign staff, most of their equipment was purchased abroad, and most of their technical staff was foreign.
- Most of their products were sold in foreign markets, with the foreign exchange earned being utilised by Britain. The only real advantage Indians derived from these industries was the creation of unskilled jobs.
Miserable Condition of Labour
- The condition of industrial labour during the British period was pitiable. Most workers were extremely low-paid, worked under harsh conditions, and endured very long hours. Conditions bordering on near-slavery prevailed on the plantations in particular.
- This oppression was vividly portrayed by the noted Bengali writer Dinabandhu Mitra in his play Neel Darpan (1860).
Slow and Painful Progress of Modern Industries
- On the whole, industrial progress in British India was exceedingly slow and painful. It remained confined largely to cotton and jute industries and tea plantations through the nineteenth century, and to sugar and cement by the 1930s.
- As late as 1946, cotton and jute textiles together accounted for 40% of all workers employed in factories.
- The Indian Planning Commission calculated that the number of persons engaged in processing and manufacturing actually fell — from 10.3 million in 1901 to 8.8 million — even as the population grew by nearly 40% over the same period. The Government made no effort to protect, rehabilitate, or modernise India’s old indigenous industries.
Adverse Policy of the Government
- Even modern industries in British India had to develop without government help, and often in direct opposition to British policy. British manufacturers viewed Indian textile and other industries as rivals, and pressured the Government of India not to encourage — but rather to actively discourage — industrial development in India. British policy thus artificially restricted and slowed the growth of Indian industry.
- Indian industries, still in their infancy, badly needed protection: they developed at a time when Britain, France, Belgium, Germany, Italy, the U.S.A., and Japan had all already established powerful industries, against which infant Indian enterprises could not hope to compete. Indeed, every one of these countries, including Britain itself, had protected its own infant industries through heavy customs duties on foreign manufactures.
- India, however, was not a free country — its policies were determined in London, in the interests of England, and British industrialists forced a policy of Free Trade upon their Indian colony. For the same reason, the British Government of India refused to give Indian industries any financial or other support of the kind European and Japanese governments extended to their own infant industries.
- Many Indian projects — for instance, in shipbuilding, locomotive manufacture, cars, and aeroplanes — could not get off the ground because of the Government’s refusal to help.
- Indian industrial development was, in addition, extremely lop-sided regionally: industries clustered in a few regions and cities, leaving large parts of the country totally undeveloped. This unequal development not only produced wide income disparities but also complicated the broader task of building a unified Indian nation.
The Growth of Two New Social Classes
- An important social consequence of even this limited modern industrial development was the birth and growth of two entirely new classes in Indian society: the industrial capitalist class and the modern working class.
- Both classes were genuinely new to Indian society, arising alongside modern mines, modern transport and communication, and modern industry itself. Vitally interested in the country’s industrial development, they carried with them new technology, new social relations, new ideas, and a new outlook — unburdened by the weight of older traditions, customs, and ways of life.
Development of Major Industries
Cotton Textiles
- India’s first cotton mill was erected in Calcutta in 1818, but it was in the Bombay region that the textile industry truly established itself on a remarkable scale under Indian entrepreneurship, becoming well settled by the nineteenth century.
- The first cotton textile mill in Bombay was started by Cowasjee Nanabhoy in 1853. The industry then expanded slowly but continuously — by 1879, India had 56 cotton textile mills employing nearly 43,000 persons.
- This growth alarmed British manufacturers sufficiently that the Manchester Chamber of Commerce sought the abolition of import duties on yarn and cotton cloth entering India — a demand met that very year (1879).
- In 1896, import duties were revived, but — much against Indian textile interests — an excise duty of 3.5% was simultaneously imposed on cloth manufactured in Indian mills, a deliberate attempt by the British Government to check the growth of Indian cotton textiles from the outset.
- By 1905, India had 206 cotton mills employing nearly 196,000 persons. The cotton industry thus already existed before World War One, sustained alongside European managing agencies by traditional trading communities such as the Gujarati banias, Parsis, Bohras, and Bhatias, who had built wealth through export trade with China. The real success of Indian industrialists came, above all, in the cotton industry of western India.
- Imported textiles continued to dominate Indian markets right up to the beginning of World War One. This changed sharply during the war — imports more than halved between 1913–14 and 1917–18, partly due to wartime transport dislocation and partly due to a 7.5% import duty on cotton textiles imposed in 1917.
- Military demand and the Swadeshi call for a boycott of foreign goods in favour of indigenous alternatives added further momentum. Under considerable pressure, the British Government, in 1917, raised the import duty on foreign cloth to 7.5%, subsequently increasing the duty on foreign (non-British) cotton goods further in later years, and granting additional protection through the Cotton Textile Act of 1934.
- The Second World War gave a further boost to Indian cotton textiles, which flourished as a result. By the time the British left India, the industry comprised 421 cotton textile mills with 202,814 looms, and between 1941–46, it even exported cloth to Britain in sizeable quantities.
Jute Industry
- Developed as a cheap substitute for flax in the early nineteenth century, jute found Bengal as its chief supplier of raw material for the mills of Dundee.
- The first jute mill in India was started by an Englishman, George Auckland, at Rishra, Bengal, in 1855. Proximity to raw material sources and cheap labour gave the Indian industry a competitive edge over its Scottish rival.
- The industry expanded slowly but steadily: in 1882, there were 20 jute mills, mostly in Bengal, employing nearly 20,000 persons; by 1901, this had grown to over 36 mills employing nearly 115,000 persons. Both World Wars gave the industry a further push.
- The paid-up capital in the jute industry rose from £79.3 million in 1914–15 to £106.4 million in 1918–19, and further to £179.4 million in 1922–23.
- The bulk of this capital was British, organised through the Indian Jute Mills Association (IJMA), which controlled output to maintain high prices — profitability held steady until the Great Depression.
- Despite this dominance of expatriate capital, from the 1920s onward, Calcutta-based Marwaris, who had made their money as traders and shroffs, began entering this previously exclusive sphere.
- Initially, many Marwaris bought stock and lent money, getting themselves elected to the boards of European managing agencies.
- Then, entrepreneurs such as G. D. Birla and Swarupchand Hukumchand set up their own mills in 1922, marking the beginning of Indian-owned jute mills around Calcutta.
- This Marwari presence gradually extended into other sectors, including coal mines, sugar mills, and the paper industry; between 1942 and 1945, Marwari businessmen even began taking over some European-owned companies.
- By the time the British left India in 1947, the number of jute mills in the country had risen to 113.
Iron and Steel
- The birth of the modern iron and steel industry in India coincides with the establishment of the iron and steel plant at Jamshedpur in 1907 by Jamshedji Tata, one of the builders of modern India. It grew to full capacity on the back of increased wartime demand for iron and steel during World War I.
- A few other companies were also established in West Bengal and Mysore, though they had to compete against imported steel and iron.
- The Second World War again gave the industry a fresh impetus, and by the time the British left India, it stood on a firm foundation.
Coal Industry
- The coal mining industry developed under the auspices of several European-owned joint stock companies. The construction of Indian railways made coal a necessary item of production, and other developing Indian industries added to this demand — as a result, coal production continued unhampered through the British period.
- The coal mining industry employed nearly one lakh persons in 1906. Both World Wars gave a further boost to production; while part of the output was exported, most was consumed by indigenous industries, allowing the industry to flourish uninterrupted.
Plantation Industries
Apart from machine-based industries, the nineteenth century also witnessed the growth of plantation industries — indigo, tea, coffee, and rubber — almost exclusively European in ownership.
- Indigo: Indigo manufacture was introduced in India at the end of the eighteenth century and flourished in Bengal and Bihar. Indigo planters became notorious for their oppression of peasants, whom they compelled to cultivate indigo — an oppression vividly portrayed by Dinabandhu Mitra in his play Neel Darpan (1860). The industry was eventually pushed out of the market by competition from German synthetic dyes, and it gradually declined.
- Tea: The tea industry developed in Assam, Bengal, South India, and the hills of Himachal Pradesh after 1850. Being foreign-owned, it was actively helped by the government through grants of rent-free land and other facilities. Over time, tea consumption spread across India, and it became an important export item — in fact, tea alone continued to prosper consistently among all the plantation industries in India.
- Coffee: Coffee plantations developed during this period in South India, enjoying a favourable period until 1920–21, after which they were pushed out of the international market by competition from Brazilian coffee.
- Rubber: A rubber plantation industry also developed during this period, but it too was pushed out of the international market by competition from Brazilian rubber, following a similarly favourable period up to 1920–21.
Other Mechanical Industries
- Other mechanical industries that developed during the second half of the nineteenth and the early twentieth centuries included cotton gins, rice, flour, and timber mills, leather tanneries, woollen textiles, paper and sugar mills, iron and steel works, and mineral-based industries such as salt, mica, and saltpetre — while cement, paper, matches, sugar, and glass industries developed further during the 1930s.
- All these industries experienced stunted growth, yet each managed to establish itself, in however limited a form, before the British departure from India.
The Bazaar Economy: A Note on Indigenous Enterprise
While government policy and the stranglehold of British capital undoubtedly inhibited Indian enterprise in certain sectors, recent research shows that below the westernised, foreign-dominated enclave, and above the mere subsistence economy of the peasantry, there existed an intermediate tier — the “bazaar” — where Indian businessmen and bankers continued to operate throughout.
- This tier comprised sectors where returns were too low, or risks too high, to attract European investors.
- The bazaar provided fertile ground for indigenous merchant-bankers from the mid-eighteenth century right through to the period of the Gandhian movements in the twentieth century.
- Some of these indigenous firms took advantage of new imperial infrastructure — such as the railways and telegraph — to build sophisticated, fairly integrated business networks spanning the entire subcontinent, and later expanded overseas to China, Burma, the Straits Settlements, the Middle East, and East Africa.
- It was these bazaar operations that generated the indigenous capital which would later be invested in industry after World War One — demonstrating that India’s industrial underdevelopment was not a consequence of any lack of entrepreneurial skill.
Labour Laws in British India
A parallel — if belated — thread of colonial policy dealt with the regulation of industrial labour:
- First Factory Act, 1881 (based on the recommendations of a commission constituted in 1874): prohibited child labour below 7 years, mandated fencing of dangerous machinery, and fixed working hours for children below 12 years.
- Second Factory Act, 1891 (based on the recommendations of a commission constituted in 1884): prohibited child labour below 9 years, fixed working hours for children below 14 years, mandated a 90-minute recess, and introduced a weekly holiday for women labour.
- Factory Acts of 1909 and 1911: extended similar provisions to the jute industry.
- Abolition of Indentured Labour (1922): the system, which had begun in 1830, was finally abolished in 1922.
- Indian Trade Union Act, 1926: provided legal status to labour unions.
- Trade Disputes Act, 1929: created special courts for settling industrial disputes and made strikes illegal in public utility services.
- Act of 1935: recognised labour constituencies and provided for the election of labour representatives.
- National Service Ordinance, 1940: recognised the duty to work, while also providing protection for workers’ rights.
- Essential Services Maintenance Ordinance, 1941: prohibited employers from dismissing workers without valid reason.
Conclusion
The rise of modern industries in British India was, in every sense, a story of contradictions: rapid growth in a handful of sectors — cotton, jute, coal, and later steel — set against the near-total absence of heavy and capital goods industries; genuine entrepreneurial success for a small class of Indian industrialists set against the enduring stranglehold of British managing agencies and capital; and, throughout, a government that offered protection and encouragement only when compelled by war or political pressure, never as a matter of policy. The parallel emergence of an industrial capitalist class and a modern working class, alongside the quiet resilience of India’s indigenous “bazaar” economy, meant that by the time the British departed in 1947, India possessed the rudiments of a modern industrial base — but one that was regionally lop-sided, structurally incomplete, and built as much in spite of colonial policy as because of it. For UPSC History Optional aspirants, this uneven industrial legacy forms an essential backdrop to understanding independent India’s early planning priorities.
