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Debunking myths of the Great Divergence

Tirthankar Roy dismisses both nationalist tropes about evil colonialists and imperial assumptions of benevolent liberal intervention

Tirthankar Roy, based at the London School of Economics, has long established himself as India’s leading economic historian, with a series of books and articles focussed mainly on the colonial period.  This new edition extends his period to include both the century of Mughal collapse and the following half century of rule by the East India Company.  In the process, he blows away many of the cobwebs around more traditional approaches as to what caused the Great Divergence between India and the West, the former falling from its once fabled wealth to lagging so far behind the latter.

Tirthankar Roy, An Economic History of India 1707-1857, Routledge, 2021, pp. 200

Roy is far too balanced, nuanced and scholarly a historian to accept either fanciful anti-colonialism or imperial triumphalism.  Instead he offers us a convincing, balanced, data-based understanding of why the Mughal world was in deep economic decline well before the dominance of the East India Company and why the Company Sahib, far from ruining India, gave it an institutional and economic model on which modern nationhood could be built. In the process, Roy dismisses both nationalist tropes about evil, plundering colonialists and imperial assumptions of benevolent, altruistic liberal intervention.

The period he covers “was significant…both for the emergence of a merchant-friendly regime and for an innovation in state structure, from a decentred political system towards the consolidation of taxes and military capacity in one centre”.  That crucial consolidation, he says, facilitated market integration, making the Indian business world the Company Sahib’s firm ally throughout most of this period and beyond. 

Roy has little time for the prejudices of the Indian polemicist Shashi Tharoor and his ally William Dalrymple that Company officers were predominantly venal, while the Indian warlords they replaced were “fairly decent”.  Reminding us of Maratha mercenaries “long remembered in western Bengal for rape and pillage”, he says, “Tharoor and Dalrymple are not sufficiently well informed to bat for the Indian warlords. Claims like theirs peddle sentiments…but they are not correctly based on evidence and not reliable as history.”

Popular history of this kind, Roy maintains, “assumes that the empire in India was a violent conquest.  Europeans, the myth goes, invaded Indians, who did not want to be subjugated and went down fighting…  But if good soap opera, it is bad history… Many Indians, because they did not trust other Indians, wanted the British to secure power. They preferred British rule over indigenous alternatives and helped the Company form a state…”

In this central analysis, the British Empire was forged through alliances with Indians and occupied lands ceded to it, far more than lands it had conquered. “The Company came to rule India,” Roy tells us, “because many Indians wanted it to rule India.” Dismissing simplistic notions that post-Mughal India, plunged into anarchy, had no indigenous business elites, Roy points out that in places like Bengal “the Company found collaborators because there was already a rich and powerful set of capitalists” who preferred it to their local rulers.

Merchants flocked to the safety of the Company’s port cities

Benares, too, had long been a prominent centre of commerce, but its bankers and merchants, “who feared state collapse more than British rule, declared unqualified support for the new regime on many occasions”.  Faced with Maratha raids, collapse of central authority and regional wars among the successor states, Bengali, Marwari and Parsi merchants flocked to the greater safety of the Company’s port cities of Calcutta, Bombay and Madras in an unprecedented “flight of capital”.

How, you night wonder, did the East India Company, starting with no state power of its own, become such a model of an efficient and successful firm?  “It succeeded in trade,” Roy explains, “because it could pool in a lot of capital, offer incentives to its employees, build stable collaboration with Indian agents and brokers, understand and study markets, and get goods manufactured to exact specifications.”

Turning to India’s indigenous post-Mughal successor states, Roy suggests that internecine conflicts “among states that lived on little money and had no time to consolidate their finances drained all of them of resources and sovereign authority, made them reliant on regional chiefs and warlords…” Dependent on those intermediaries to collect land taxes, both the Mughals and the successor states “were as poor as the peasants they taxed”. Indian states earned very small revenue per head compared with Western Europe, making them both fiscally and militarily weak.

While the post-Mughal states competed for these limited revenues, the Company offered a very different and much stronger state model, centralising both fiscal and military power, having “demilitarised the armed groups…who earlier collected taxes and enjoyed local political power”. By so doing, it could create “an integrated political space in South Asia, the like of which the region had not seen before”.  With political integration, came market integration for commodities, capital, labour and crucially between internal and maritime trade.

Following the Mughal collapse, fragmented power had meant a network of customs barriers, innumerable currency systems and fluctuating exchange rates. While taxes remained, the right to levy them had “disintegrated” down to local warlords and increased fiscal uncertainty. This fiscal anarchy receded as the Company expanded its territorial rule, centralising and reducing inland transit duties and abolishing them in 1838, while its taxes on trade fell dramatically to less than a quarter of those levied by the Mughals, thereby hugely benefiting Indian traders. Roy offers several examples of petitions supporting the Company from Indian businesses, especially from Benares, India’s leading hub of banking and trade in the 1700s. This “army of stakeholders in the emerging world of commerce” supplied the Company with important supplies and finance in its military operations.

This book gives short shrift to theories that the collapse of the Mughal Empire, far from unleashing anarchy, saw the emergence of wealthy regional states, whose economic growth was stunted by the Company’s exploitative rise. Instead Roy marshals much statistical evidence to show that India was already impoverished long before British rule began, already poorer than Britain at the end of the 17th century.  India’s average real income fell between 1600 and 1750 under Mughal rule and remained the same for the next half century during the rise of the Company. Roy even finds evidence of “a small improvement” in the living conditions of poorer agricultural labourers during the next half century of British rule. “It is safe to say”, he judges, “that the Company state’s rise made almost no difference to the average Indian.”

Always sensitive to the Company’s shortcomings, he does point out that its greatest failing was prioritising military expenditure over public goods, thus failing to transform rural livelihoods, apart from some investment in canals. “The best defence of that dismal record,” says Roy, is that neither the Mughals nor the Indoan powers that succeeded them were any better at meeting that challenge.  

On the question of state formation, Roy attributes the Mughal decline and the emergence of successor states to the fiscal autonomy of rich provinces like Bengal, Awadh and Hyderabad, whose financial contributions to Delhi progressively declined. Awadh, having derived much economic advantage from its trade with the East India Company and other Europeans, turned rapidly into a satellite of the Company after the Battle of Buxar in 1764. Roy explains the Company’s military victories in such battles by the fact that its much smaller forces operated under a single chain of command, while those of its Indian opponents were huge conglomerates, each division under separate warlords, with poor information flows, which meant that minor reversals at the front caused panicked retreat at the rear.

Turning to the Marathas of Western India, often touted by Hindu nationalists as viable successors to the Mughals, Roy points out that their real strength was military rather than institutional. Even on the military side, Afghan-led forces routed a huge Maratha army at the Battle of Panipat in 1761, butchering several hundred thousands “by conservative account”.

There were no other serious Indian rivals to Company rule

The Marathas never recovered. Cash-strapped Maratha princes increasingly recruited mercenaries to their armies, using them to coerce Rajput states to pay tribute, a process which led some to describe the Marathas as “associations of vampires”. “A fiscally devastated state armed with bandit soldiers,” says Roy, “moved towards a final reckoning with the Company.”  When they started raiding British territories, matters came to a head, and by 1818 the Company had defeated three leading Maratha princes and annexed their territories to British India. Any dreams of Maratha Empire had been laid to rest.

Roy attributes the failures of the Marathas to their reliance on tribute, obtained by “selective coercion and intimidation” of local chieftains, rather than systematic, central revenue collection from the territories they conquered. “With limited capacity to run a fiscal system”, he explains, “the only way state income could increase was by keeping the conquest machine on overdrive… The operation’s logic bogged the Maratha chiefs down in a never-ending commitment to extortion and led them to neglect the task of improving civilian administration.” Panipat put an end to Maratha conquests, and the turn of the century saw the loss of most of their subject territories.

Growing anarchy among the much-weakened Rajput states of the West, followed by similar chaos in the Punjab after the death of its Sikh king Ranjit Singh, ensured that there were no other serious Indian rivals to Company rule. Roy concludes that India’s post-Mughal successor-states employed “two parallel modes of governance”: one, which he calls statism, attempted to control and improve land revenue administration; the other, militarism, imposed military conquest over decentralised land revenue. The Marathas combined statism in their home region of Maharashtra with only militarism in northern India.  

According to Roy, “By 1800 there was a divergence between the Company and Indian states.  Increasingly, there was only one model of successful statism in 18th century India, and the Company represented it. This was so because the Company’s rise…set off significant changes in administration.”

The Company went further than its rivals in redefining property ownership rights and enforcing commercial law. At a time when military expenditure was exceptionally high across India, the Company managed to maximise both its revenues and military capability over many decades. Larger revenues made the Company more creditworthy and enabled it to reduce its debt service ratio much below that of Indian states. While conquests by Indian states enriched and empowered their military aristocracy at the expense of the state, the Company effectively neutralised such intermediaries in its own empire.  

Roy offers an instructive comparison between Mughal state finances and those of the Company. Only a fraction of Mughal revenues had actually reached the central treasury, with the rest assigned to intermediaries. Statistical studies show the dramatic fall of India-wide revenue collection in 1766 to as low as just 6 per cent of its past level in 1600; that would have meant a corresponding decline of civil government in the same period.  By 1871, the British Empire had reversed the trend, bringing revenue collection in real terms above its 1600 level, largely by greater centralisation and abolishing intermediaries.

The 18th century saw so many regional conflicts that wars needed to be financed by territorial conquest, “engendering more wars”, a spiral the Company avoided because it was readier to borrow and was considered a far more reliable debtor than most Indian warlords. Its efficiency was also reflected in its rapidly expanding armies, with military service treated as a full-time professional occupation, eliminating the payment of brokerage to labour-agents. 

Under Company rule, capitalism, says Roy, even reached land ownership, which became easily saleable and justiciable by a hierarchy of law courts. Linked up to its thriving port cities, inland trade revived and cultivation expanded in the fertile Indo-Gangetic basin. Company rule compared increasingly favourably with the alternatives. Roy argues that statistical data suggest “a deep economic decline” more generally through the 18th century, with most states spending shrinking resources on warfare, leaving “disused canal, embankments in disrepair, unsafe roads, overland trade in disarray and urban decay”.

Conditions were most chaotic in the former Mughal heartland of the Delhi-Agra region, with its resources of both labour and capital, led by hundreds of wealthy Indian merchants and bankers, migrating east to the Company’s territories. Law and order were scarcely better in some Maratha territories. A party of Company officers travelling in 1798 with a Maratha pass through territories theoretically subject to the Marathas were nevertheless stopped every few miles by local chiefs levying a toll. 

Cheap textiles from Manchester hugely benefited to Indian consumers

Roy is at his best in his portrait of the changing world of business across India during the 18th and 19th centuries.  British conquest was essentially a story of how the pre-colonial world of inland trade, banking and industry, based on the great cities of Mughal India and on moving goods overland, united and merged with the seaboard economy based on ports and foreign trade. “The implicit persistence,” complains Roy, “of the idea that Europeans swallowed up what was once an autonomous Asian capitalism is mostly misleading based on the biased nature of the archival sources that exaggerate European role in trade.”

Roy’s calculations show that textiles, the only important tradeable in Bengal, accounted for a mere 2 per cent of its income in 1763. Indian merchants, he finds, operated within family firms, whereas Europeans formed joint-stock companies, and many Indian merchants were “hounded to death by ruthless political pressure” by Indian warlords in order to fund their interminable wars. Europeans meanwhile operated in an integrated financial market that allowed larger scale investment, greater risk absorption and more capital intensity.  

Roy’s findings sharply contradict the usual “Drain Theory” protagonists, who blame the Company and the Raj for draining India of its wealth via remittances of silver abroad. He points out that the colonial government was a tiny part of the economy and that its remittances abroad were offset by silver that flowed in via India’s trade surplus. He also points out that the return of peace to northern India under Company control from 1800 was a major stimulus to trade, linked down-river to the world market via Calcutta. 

Another anti-colonial trope Roy debunks is the notion that cheap textiles from Manchester, imported from the 1820s, were catastrophic for Indian cotton textiles. Although such imports ended many artisan livelihoods, they were a huge benefit to Indian consumers generally and to Indian merchants who transported and marketed them to the interior. The result was a steady rise in India’s per capita consumption of cotton cloth, despite some decline in handlooms.

The key importance of India’s growing foreign trade was reflected in how the decline and depopulation of once great Mughal cities like Agra, Delhi and Lahore, caught up in the anarchy of Mughal collapse, were far outweighed by the growth in the three key ports ruled by the Company.  Bombay, Calcutta and Madras attracted population and capital from all over India, controlled their hinterland and financed the Company’s territorial expansion across the subcontinent. Their prosperity soon spread to other Company-ruled towns, which linked up inland with maritime trade.

Business apart, these cities were fertile centres of Indo-European collaboration in everything from governance and law to education, languages, philosophy, medicine, botany and social customs.  “There was a mutual exchange of information and ideas”, which prepared the way for modern India’s own intellectual renaissance.

How, we might ask, did all this institutional change affect the living standards of most Indians? While dismissing cliches about impoverishment, Roy concedes that India’s huge regional variations make it difficult to generalise, with some of its regions larger than most European countries.  European travellers to Mughal India in the 17th century described the “common people” as “poor wretches” with lives little better than that of “contemptible earthworms”.  Roy joins the eminent economic historian Tapan Raychaudhuri in suggesting that the economic decline occurred between 1689 and 1813, followed by recovery under colonial rule.

Most wage-based measures of living standards are undermined by the changing nature of that labour over time and whether they applied to individuals or families. Roy finds no evidence to support the usual nationalist thesis of prosperous workers falling into poverty under the Raj. Peasants, artisans and workers, based on his projections, were neither better nor worse off in the timespan of this book. What he does identify is a redistribution of wealth from the feudal, landed classes to the capitalists who had flocked to the Company’s banner, and in that clash he finds the roots of the Mutiny or Great Rebellion of 1857.

Merchants resorted to recruiting their own private armies

Exploding nationalist myths of India-wide anti-British sentiment during the rebellion, Roy argues that “the divided response followed a definite pattern and was a crucial reason for its failure”.  Especially in the heartlands of revolt in northern India, the Company’s “new political economy” had deepened divisions between disaffected landowners and the business classes who backed the Company against the rebels. This book cites several instances of bankers and merchants being illegally squeezed for funds in rebel-held cities like Delhi. Such extortions confirmed the rebels’ administration as “loose and precarious”, even “chaotic and incompetent”.

Merchants and bankers responded to such threats “by various acts of passive resistance and covert spying for the British”, despite the risks often involved. The urban capitalist, who relied on long-distance trade, was usually reassured by the British war effort “keeping long-distance trade routes open, safe and well supplied”. In some areas, merchants even resorted to recruiting their own private armies to drive off the rebels. 

The support of most Punjab princes gave the Company control of trade routes to Delhi, which it successfully besieged. Even in Bengal, more than 2,500 prominent Indians of Calcutta, led by the Maharaja of Burdwan, presented the Viceroy with an address congratulating him on the recapture of Delhi. Other such loyal addresses followed, and the Bengali press lamented “the disorganisation caused by mutiny”. The businessmen of Bombay and Madras, many of whom had embraced English education and cosmopolitanism, followed suit.

Roy’s overall conclusion then is that the East India Company presided over “the start of a process that would see a firmer integration…of maritime trade with overland trade, of trade with production, of land with sea”, integrating markets for commodities, capital, knowledge, enterprise and labour. “If an integrated market is a marker of modern capitalism” Roy argues, “the 18th century initiated that process in India.” In his analysis, the rebellion of 1857 was a backlash against “the construction of a new state that took away warlord-power and empowered the merchant”.  After 1857, the construction of railways and the passing of new laws dealing with business and land completed this market integration, without which India would have found it hard to evolve a modern economic system.  According to Roy, that process of modernisation, under British rule, created “one of the most impressive episodes of industrialisation outside Europe” and established India as a major trading power. How those achievements evolved in the 20th century will, I very much hope, be the subject of Tirthankar Roy’s sequel to this volume.

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