The British hangover that devastated India’s economy

In the seventh of their eight-part series on Indian economy’s contemporary history, the authors compare the policies of various Indian governments with the policies imposed by the British.

When India fought for freedom from British rule, much of the opposition was in response to the economic policies imposed by the rulers. These related to regulations on industries, taxation, the controls on the monetary system and activities related to trading.

In response to the destruction of India’s textile industry and its conversion into a supplier of raw materials for the industry in Britain, Indians protested by burning clothes imported from Manchester. The taxation policies of the British too led to repeated protests by Indians. One of the most famous protest movements related to taxes was the opposition to the tax on salt.

After the British left India, it was hoped that India would free itself by dismantling the British system. Instead, the Indian government took over the existing institutions and continued with the British policies. In many cases, the Indian government intensified the controls put in place by the British and made life worse for the people.

Within a decade of taking over the reins of power, the Indian government targeted businesses and took over many industrial sectors. The government also competed against traders by participating in trading activities. Businesses were regulated to such an extent that it was impossible for the business community to be productive. Policies that banned the Indian industry from manufacturing weapons while the government imported arms and other military equipment from British firms were a continuation of the policies that benefited the British industries at the cost of Indian industries.

Various Indian governments have fared no better on the taxation front. They have introduced a variety of taxes and have set prohibitively high tax rates. When the British introduced a 50% ‘excess profits tax’ on businesses and a ‘super tax’ on individuals, they faced protests. Yet, the corporate tax reached a whopping 63% in the years before India began the process of liberalising the economy.

Under British rule, traders objecting to the taxes wanted to know what the British had done for Indian traders that a tax on traders could be justified. This question is highly relevant today. While the government claims that it collects taxes for a variety of purposes including supplying drinking water, providing uninterrupted power, and clearing garbage, it has failed on all these fronts. Just as in the case of the former British rulers, the taxes collected by the Indian government are used solely for the aggrandisement of the ruling class. Yet, politicians and bureaucrats do not hide the fact that their aim is to ‘maximise the revenue’ they generate for themselves.

India’s monetary policies too left much to be desired. Under British rule, there were persistent demands over the years from various quarters including Gopal Krishna Gokhale and Mohandas Gandhi to link the rupee to gold. When the British proposed setting up the Reserve Bank, they faced vehement protests from the members of the Swaraj movement. Instead of reversing the British policies, the Indian government has continued with the Reserve Bank of India and used it to impose inflation on the country. Its measures to confiscate gold from the people and force a dependence on the paper currency of the government leave people with no escape from inflation leading to the value of their savings being diminished. These policies are influenced by the West and the justifications for them come from universities in Britain and the US.

India’s relationship with various international organisations is another aspect that is detrimental to the country while benefiting Britain and other western nations. Despite banning the use of gold as currency within India, the government has used gold in its transactions with the IMF. This is identical to the British policy of demonetising gold for Indians while hoarding it up in Britain. Today, the IMF is an organisation that allows only an European to be its head.

A similar law under the British would have been criticised, yet, Indian politicians accept India’s subservient role in its relationship with the IMF.

Just as the British policies devastated the Indian economy, various policies of the Indian government too have contributed to the impoverishment of the Indian population. In the recent past, India’s steps on removing regulations on industries have been in the right direction. However, it still has a long way to go, and for it to truly prosper, it needs to tackle the major issues related to taxes, monetary policy and the relationship with international organisations that indirectly control various aspects of the economy.

— Arvind Kumar is an energy trader and can be reached at arvind@classical-liberal.net. Arun Narendhranath is a political researcher and can be reached at narenarun@gmail.com
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