MN Roy

New Economic Policy of British Imperialism

Its Effects on Indian Nationalism.

Date: 1925
Source: Communist International, no. 21, pp. 70-91
Transcription Ted Crawford
HTML Markup: Mike Bessler
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Bourgeois nationalism of India has ended in a complete compromise with imperialism, as was predicted by those who judged the situation with Marxian realism. Class antagonism developed side by side with national antagonism inside the post-war period of the Indian Nationalist Movement. At last, the former became predominant over the latter. The process of class-differentiation inside the Nationalist ranks caused constant regrouping in the political sphere. The tendency was toward the formation of a bourgeois bloc of constitutional opposition. Imperialism helped this tendency very cleverly and successfully with the policy of "Economic Concession and Political Repression." This move toward the Right - toward compromise with imperialism - was marked by two very distinct stages: first, divorce of the bourgeois Nationalist Movement from the most revolutionary social forces - workers and peasants; second, the schism between the big bourgeoisie and the petty bourgeoisie. The first was accomplished in 1922, when the programme of mass passive resistance to imperialism was abandoned in favour of parliamentary obstruction. The organisation of the Swaraj Party marked the separation of the Nationalist movement from revolutionary mass actions. By the end of 1925 the schism between the big bourgeoisie and the petty bourgeoisie became wide enough to split the Swaraj Patty, which for two years had served the purpose of a bridge between the constitutionalism of the big bourgeoisie and revolutionary inclinations of the petty bourgeoisie. The split in the Swaraj Party means the burning of that bridge; consequently the last obstacle to a happy compromise between the Indian bourgeoisie and British imperialism, of course under the leadership of the latter, is removed.

The desire for this compromise is not one-sided. British imperialism is very desirous to stabilise the economic and political situation in India. It has long been recognised by far-seeing imperialist statesmen that a country like India cannot be kept long in subjugation without the active and willing support of an influential section of the native population. In other words, imperialism must have a special basis in India. Until the earlier years of the twentieth century British imperialism in India relied upon two native factors: one positive, the other negative. The first was the loyalty of the reactionary landed aristocracy which had been partly created and partly foisted up by the British conqueror. The second was the passivity of the masses. Relying on these two factors, British imperialism could afford to ignore the feeble demands of the rising bourgeoisie and the revolutionary dissatisfaction growing among the petty intellectuals. Besides, until the World War, the economics of imperialism demanded that India (as well as other colonial countries) should be held back in a state of industrial backwardness in order to supply the market and raw materials to the metropolitan industries. Consequently, the relation between imperialism and the colonial bourgeoisie was that of antagonism. This antagonism found its expression in the Nationalist movement. But there was another economic consideration which made the nationalism of the Indian bourgeoisie weak and compromising even in those days. Owing to the forced industrial backwardness of the country, the Indian bourgeoisie was mostly engaged in trade which was dependent upon British imperialism both politically and economically. Politically, because security and expansion of trade required a stable government and order in the country, which conditions had been fulfilled by the British; economically, because both the export and import trade being practically a British monopoly, the Indians engaged in it were economic vassals of imperialism. The Nationalist Movement, inspired and headed by such a weak social class, did not disturb imperialism. The terrorist secret societies, through which the growing discontent of the unemployed and unemployable petty intellectuals was spasmodically expressed, could be dealt with successfully by brutal repression. The situation remained more or less like this till the eve of the World War. Soon after the outbreak of the world conflagration, it became evident that British domination in India could no longer be maintained on the old narrow social basis. The social basis of British rule could be widened and deepened only by drawing at least the upper strata of the Nationalist bourgeoisie within the economic orbit of imperialism. This necessitated a change in the economic policy of imperialism. Still another factor contributed to that change and precipitated it. The exigencies of war obliged Britain to relax her grip on the economic life of India. Thus began the new era which was characterised by Britain's desire to come to an agreement with the Indian bourgeoisie.

All along the grievance of the Indian bourgeoisie had been that the British government impeded industrial development of India. The two main planks in the Nationalist platform were fiscal autonomy and progressive advance towards self-government. The demand for fiscal autonomy. grew energetic in proportion to the accumulation of capital in the hands of the Indian bourgeoisie. The phenomenal growth of British trade with India unavoidably caused a proportionate accumulation of capital in the hands of those Indians who were connected with that prosperous trade. The following table shows the growth of India's foreign trade since the beginning of the twentieth century, in rupees:

Export Import Excess
1874-79 63 38 25
1879-84 79 59 20
1884-89 88 61 27
1889-94 104 71 33
1894-99 107 74 33
1899-04 122 85 37
1904-09 144 103 41
1909-10 188 122 66
1910-11 209 133 76
1911-12 228 144 84
1912-13 246 166 80
1913-14 249 191 58

It will be noticed that the characteristic of this large volume of trade has always been a considerable excess of export over import. In countries in a normal economic (capitalist) condition, such a continual favourable balance of trade indicates a state of "national prosperity." But in India the ever upward bent of the line of excess of export indicates just the opposite. The part of the commodities exported, that was not covered by imports, did not go to create credit in favour of India. The surplus Indian export represented mostly the tribute to imperialism, a part being appropriated by the native trading bourgeoisie in a manner to be explained presently.

The continuous excess of export over import indicated that the Indian peasantry was terribly exploited. Even now nearly 70 per cent. of India's exports are raw materials and foodstuffs. Before the war the proportion was greater. Imports are mostly manufactured goods. The comparative smallness of their volume shows the strict limitation of the buying capacity of the Indian masses. The latter produced and was obliged to give up much more than they could get in return. The trade balance in favour of India was divided between British imperialism and Indian traders. A portion of the surplus exports was paid up by the import of gold and silver, which was mostly absorbed by the upper classes of Indian society. The remaining went to the account of liquidating India's obligations to England for the benefit of British rule.

The following table shows how the value of excess export was divided up till the war:

Excess Export Treasure Imported Spent to liquidate obligations in Britain
1874-79 25 10 15
1879-84 20 12 8
1884-89 27 13 14
1889-94 33 14 19
1894-99 33 8 25
1899-04 37 14 23
1904-09 41 22 19
1909-10 66 31 35
1910-11 76 32 44
1911-12 84 49 35
1912-13 80 51 29
1913-14 58 37 21

NOTE: The tables are compiled from the figures in the Government Statistical abstract; round numbers approximating the exact value are used.

Thus the proportion of the surplus value extracted from the Indian masses, appropriated by the Indian bourgeoisie, during the period 1874-1914, in terms of money amounted to 6,710 million rupees, approximately. This wealth could not be converted into capital sufficiently profitably by investment in land and trade - two main avenues of exploitation open to the Indian bourgeoisie. The search for more lucrative industrial outlet became ever more persistent and crystalised in the demand for fiscal autonomy.

It is unmistakable - and therein lies the germ of subsequent compromise with imperialism - that the political plank of the Nationalist platform was not half as strong as the economic one of fiscal autonomy. What is meant by fiscal autonomy? It means that India should be autonomous (of Britain) in her financial and trade operations. It is evident that the autonomy in financial and commercial spheres cannot be effective without a simultaneous political economy. So, long as Britain remains the dominating political force — the State power - in India, she will not permit the Indian bourgeoisie to readjust the financial and trade relations in a way harmful to her interest. But, significantly enough, the nationalism of the Indian bourgeoisie never demanded political freedom - it does not do so even now.

Subsequent events have proved that by fiscal autonomy the Indian bourgeoisie meant a wider latitude to exploit Indian labour by converting their accumulated wealth into industrial capital. In course of time they appreciated the impossibility of realising even that much economic freedom without some political power. In 1915, as condition for India's full support to Britain in carrying on the war to victory, the Nationalist bourgeoisie demanded self-government (within the Empire) and immediate grant of fiscal autonomy. Imperialism could no longer remain indifferent to that demand made in a very critical moment. The first step towards agreement was taken, to be followed by others in quick succession.

As a matter of fact, additional and unexpected events had already given rise among the imperialist statesmen, a tendency towards an agreement with the Indian bourgeoisie even before the latter definitely formulated their attitude in 1916. The then Viceroy, Lord Hardinge, in a despatch to the Secretary of State for India in the latter part of 1915, recommended the policy of fostering the industrial growth of India. He wrote:

"It is becoming increasingly clear that a definite and self-conscious policy of improving the industrial capabilities of India will have to be pursued after the war, unless she is to become more and more a dumping ground for the manufactures of other nations…The attitude of the Indian public towards this important question is unanimous, and cannot be left out of account…After the war, India will consider herself entitled to demand the utmost help which her government can afford to enable her to take her place, so far as circumstances permit, as a manufacturing country."— (Lord Tiardinge's despatch to the Secretary for India in 1915.)

Acting on this recommendation of the Viceroy, and in order to meet the demands of the Nationalist bourgeoisie, the British Government set up the Indian industrial Commission "to examine and report upon the possibilities of further industrial development in India." A Nationalist leader and three foremost Indian capitalists sat on the Commission with representatives of imperialism. After two years of exhaustive investigation into the sources of capital, raw material, market and labour, the Commission recommended, among other subsidiary things:

1. That in future the government must play an active part in the industrial development of the country;

2. That India produces all the raw materials necessary for, the requirements of a modern community, but is unable to manufacture many of the articles and materials essential alike in times of peace and war. Therefore it is vital for the government to ensure the establishment in India of those industries whose absence exposes us to grave danger in the event of war;

3. That modern methods should be introduced in agriculture so that labour now wastefully employed would be set free for industries;

4. That the policy of laissez faire in industrial affairs, to which the government clung so long, should be abandoned;

5. That the establishment of Industrial Banks should be encouraged by means of government financing if necessary;

6. That the necessity of securing the economic safety of the country and the inability of the people to secure it without the co-operation of the government, are apparent. Therefore the government must adopt a policy of energetic intervention in industrial affairs.

While the Commission was still carrying on its investigation, practical effect was given to the recommendations that it made subsequently. In 1917, the Indian Munitions Board was created "to develop Indian resources to meet the necessities of war and the situation created by the war." The (English) Chairman of the Industrial Commission, who had always been an advocate of the point of view that industrial development of India would strengthen the basis of imperialism, became the head of that newly-created State organ which gave a tremendous impetus to Indian industry. The Munition Board worked on the following lines:

1. Direct purchases in India of articles and materials of all kinds needed for the army, the civil departments, and railways;

2. The diversion of all orders for articles and materials from the United Kingdom and elsewhere to the manufacturers in India;

3, The giving of assistance to individuals and firms in order to establish new industries or develop old ones.

The result was reflected in the increased share of manufactured articles in export trade from 24 per cent. to 31 per cent., reached in two years. Besides, orders for large transport and military supplies were placed with Indian manufacturers, who were given State aid to fulfil the orders. The growth of the Tata Iron and Steel Company (Indian) is indicative of the situation in general:

Year Pig Iron Steel Steel Rails
1915 154, 509 66, 603 45, 639
1917 167, 870 114, 027 72, 670
1918 198, 064 130, 043 71, 096
1919 232, 368 134, 061 70, 969

The net profit was as follows:
1915 Rupees 2,805,000
1916 5,103,000
1917 7,927,500
1918 7,900,000

The next step towards agreement was the scheme of constitutional reforms prepared jointly by the Secretary of State for India, Montagu, and the Viceroy, Lord Chelmsford. They proposed to give the Indian bourgeoisie and higher intellectuals a share in the legislative and administrative authority of the country. The main features of the Reforms were:

1. Modification of the control of the Indian Government by the British Parliament;

2. Creation of central and provincial legislatures with an elected majority;

3. Extension of the franchise to include the entire bourgeoisie and the upper strata of the petty bourgeoisie;

4. Increase of the number of Indian members of the Viceroy's Executive Council (Government) and appointment of Indian Ministers to the Provincial Governors in addition to Executive Councillors (both English and Indian);

5. Transfer of local self-government to the Indians;

6. Opening of the higher positions in civil services to Indians, etc., etc.

These political reforms (essentially very inadequate), together with the recognition of the right of Indian capital, fully satisfied the Indian bourgeoisie. On the economic aspect, the Commission on Constitutional Reform expressed the following opinion:

"As the desirability of industrial expansion became clearer, the Government of India fully shared the desire of the Indian leaders to secure the economic advantages that would follow the local manufacture of raw products. English theories as to the appropriate limits of the State's activity are inapplicable to India. We believe that this is true in case of industries, and that if the resources of the country are to be developed, the Government must take action."

It is to be clearly noticed that the concessions made were not forced by the demand of the Indian bourgeoisie alone. Two other factors of very great importance asserted themselves on the situation. They were:

1. The exigencies of the war, and

2. The necessity of widening the social basis of imperialism. Still another factor came into play subsequently. That was the crisis of world capitalism caused by the war.

Towards the close of the world war the negative factor - passivity of the masses.- upon which British rule in India had relied, almost disappeared. In spite of the maturing rapprochement between imperialism and the Nationalist bourgeoisie, the country was in a state of revolt. The necessity of widening and deepening the social basis of the British rule in India by winning ever the native bourgeoisie become imperative. The Reform Act of 1919 was passed by the British Parliament to meet the situation. But the first great revolutionary expression of Indian nationalism could not be altogether suffocated by an Act of Parliament, A few years of disturbance were to follow. The revolutionary upheaval of 1919-22, however, did not, hinder the process of agreement. On the contrary, the fear of a revolution drove the Indian bourgeoisie to the arms of imperialism.

The appearance of tremendous revolutionary forces on the scene encouraged the petty-bourgeoisie, whose position would be scarcely improved by the Reforms, to oppose the reforms. Even a section of the bourgeoisie joined that opposition. But the policy of steady economic concession to the Indian bourgeoisie followed by imperialism, in course of time, knocked the bottom out of the opposition, which took the form of boycott of the reformed legislatures. It may once more be emphasised that the policy of concession was forced upon imperialism by two considerations entirely independent of the demand of the Indian bourgeoisie. They were:

1. To enlist the services of the Nationalist bourgeoisie in the attempt to suppress the revolutionary uprising of the Indian masses for freedom, and

2. To overcome the post-war crisis of capitalism by creating new markets and tapping the sources of cheap labour.

As a further encouragement to the process of Indian industrialisation, in December, 1919, the Government moved a resolution in the Legislative Assembly, appointing a commission to give practical shape to the recommendation of the Indian Commission. The Resolution says:

"The most obvious and direct form of assistance which the Government can give to the industries of the country is by the purchase of supplies required for the public services so far as possible in the country itself."

Referring to the cause and consequences of the establishment of the Indian Stores Department, the British Trade Commission in India wrote:

"In the first place, both the Indian and also the nonofficial European members of the Legislature are determined that, in future, all purchases of stores for Government requirements shall be made in India, and that all tenders shall be called for in India and in rupees. These claims have been met by the Government of India to some extent. The revised Stores Rules permit the newly-organised Indian Stores Department at Delhi-Simla to purchase almost unlimited quantities from stocks held in India or in the course of shipment. They also sanction purchases of machinery and plant from the Indian plant of British manufacturers or from their technical agents. There seems to be little doubt that the new Indian Stores Department will rapidly increase in importance, and that the centres of purchasing influence, so far as imported stores are concerned, will be transferred from London to India."

Already, in 1918, the Government had declared that they would place the order for 3,000 railway waggons with Indian manufacturers annually for ten years, provided that the prices were not higher than the prices at which waggons could be imported from other countries. A contract was made with the Tata Company for the supply of 20,000 tons of steel rails annually for three years. Another contract was made with the same firm for the supply of 10,000 tons of steel plates annually for a period of ten years. The Budget of 1922-23 allotted 1,500,000,000 rupees for the rehabilitation of the railways. On the motion of Sir Vithaldas Thakersey, a leading Indian industrialist and financier, the Legislative Assembly passed a resolution appointing a committee to investigate "what steps should be taken by the Government of India to encourage the establishment of the necessary industries so that as large an amount as possible of the railway rehabilitation allotment be spent in India."

In its report the Railway Committee cited the instances of the failure of Indian manufactures to successfully compete with the manufacturers of other countries. Consequently the opinion of the Committee was "that industries newly started in India for the manufacture of railway materials of a fabricated character cannot, in the initial stage, compete without assistance against established industries abroad." As a logical consequence of this admission, the Legislative Assembly passed a Bill in June, 1924, granting bounty on the manufacture of railway waggons in India until the year 1929.

All these measures were heading towards Protectionism - the summum bonum, of Indian Nationalist demand. To the dissatisfaction of the Indian bourgeoisie, the Industrial Com. mission of 1916 had been precluded from touching the tariff question. Naturally, British imperialism was very reluctant to equip the Indian bourgeoisie -With a weapon that could eventually be turned against it. But events were moving fast. The decision to purchase railway material, structural steel, etc., manufactured in India when the amount manufactured could obviously not supply the demand, was an invitation for British capital to build industries in India. The concession to the Indian bourgeoisie was incidental. The process of accumulation of capital in the industries in Britain was on the decline; if British capital could not find other sources of investment which would lead to accumulation to make up for the decline at home, the post-war crisis of British imperialism would be decidedly fatal. Further, the Indian market was rapidly ceasing to be a British monopoly. It was invaded from all sides - United States, Japan, Germany, and Belgium taking the lead. The following tables show the situation as regards iron and steel trades:

Steel Imported
1914 1922
Britain 59.8 per cent 45.7 per cent of total import
Belgium 17.0 per cent 30.7 per cent of total import
U.S.A. 2.2 per cent 13.7 per cent of total import

Even Germany, which had been totally eliminated from the Indian market up till 1920, recovered her position by 1922 to the extent of 12 per cent, of the total import.

Iron Bars and Channels in tons
1920 1922
Britain 77, 726 17, 616
Germany 9, 743 38, 404
Belgium 39, 580 113, 116

The textile market, which had absorbed over 3o per cent. of British export to India, was seriously cut into by Japan. The following figures illustrate the situation:

Pounds of Yarn Imported
Britain Japan
1922-23 31, 018, 372 26, 546, 905
1923-24 24, 789, 923 20, 430, 025
1924-25 20, 759, 078 32, 324, 773

In the first quarter of 1925, Japanese import was 16,160,285 pounds as against 4,861,775 pounds from England. As regards woven goods, particularly of the finer varieties, Lancashire was still resisting the competition. But over 60 per cent. of India's textile demands consist of cheap rough stuff, owing to the low standard of living of the people. Ever increasing quantities of yarn of the lower counts, imported from Japan, would be woven in the Indian mills and drive the Lancashire cloth out of the Indian market. The consideration of this eventuality induced the Lancashire mill-owners, just recently, to come to an agreement with the Indian manufacturers by acquiescing to the abolition of the Excise Duty on the Indian cotton industry.

The greatest proportion of the 1,500,000,000 rupees allotted (in 1921) for the rehabilitation of railways was spent in England, but in the teeth of persistent Indian demand that supplies for Indian railways should be bought in the cheapest market. Eventually Indian orders would go to other countries by the sheer law of competition (the basic principle of capitalist economy), unless Britain permitted India herself to supply them.

British manufacturers were being dislodged approximately at the corresponding rate from other Eastern markets. To manufacture in India was the best counter-action. Cheap tabour, raw materials, and great saving on the cost of transport, taken together, would enable the British capitalists not only to hold their own in the Eastern market; the enormous profit made would also enable them to tide over the industrial crisis at home.

Soon after the conclusion of the war, a series of iron and steel manufacturing companies were registered in India, all connected with British firms. The principal ones were:

1. Indian Iron and Steel Company, Ltd., capital Rs.5,000,000. Registered in 1918. Projected production 180,000 tons of pig iron a year. Promoted by Burn and Co., a British engineering and shipbuilding firm in India.

2. The United Steel Corporation of Asia, Ltd. Capital, Rs.150,000,000. Registered in 1921. Projected annual production, 300,000 tons of pig iron and 200,000 tons finished steel, to be increased in a few years to 700,000 and 450,000 respectively. Promoted by Caramel, Laird and Co., of Sheffield.

3. The Peninsular Locomotive Co. Capital Rs.6,000,000, held partly by Kerr, Stuart and Co., of Stoke-on-Trent and partly by Indian capitalists. Will have the capacity to produce 200 locomotives a year to begin with.

The lead given by these firms was sure to be followed by others. (It has been proved to be so by subsequent events.) So tariff walls raised by the Indian Government would no longer operate against the British interests. They would protect the Indian key industries largely promoted and owned by British capital.

Besides, financial difficulties in the post-war years had obliged the Indian Government to raise import duties to a height which, for practical purposes, had Protectionist effects. From an average 3 per cent. ad valorem levied before the war for revenue purposes, the import duties had been raised from 11 to 15 per cent. Judged from this side, what remained to be done was to call a spade a spade - come out officially in favour of Protection for India and thus satisfy the traditional demand of the Nationalist bourgeoisie.

In the beginning of 1921 the following resolution, moved by Lallubhai Samaldas (an Indian merchant and financier), was passed by the Legislative Assembly:

"This Council recommends to the Governor-General in Council that His Majesty's Government be addressed through the Secretary of State with a prayer that the Government of India be granted full fiscal autonomy subject to the provisions of the Government of India Act."

Immediately after this resolution had been passed, the Secretary of State for India, in replying to a deputation from Lancashire (which had all along been the sturdy opponent to India's fiscal freedom), declared the decision:

"To give to the Government of India the right to consider the interests of India first, just as we, without any complaint from any other parts of the Empire, and the other parts of the Empire without any complaint from us, have always chosen the tariff arrangements which they think best fitted for their needs, thinking of their own citizens first."

This speech was followed by a despatch, dated 30th June, 1921, to the Government of India, announcing the decision of the British Government to accept the principle of fiscal autonomy.

In October, 1921, was appointed the Fiscal Commission to examine the question of tariff, under the presidency of Sir Ibrahim Rahimtoolla - a great Bombay millowner. Out of the 11 members of the Commission 7 were Indians, all prominent in industrial, commercial and Nationalist political fields. One unprecedented feature of the Commission was that it had only one English official on it.

The Fiscal Commission submitted its report at the end of the next year. Basing itself on the conclusion "that the industrial development of India has not been commensurate with the size of the country, its population and its natural resources, and that a considerable development of Indian industries would be very much to the advantage of the country as a whole," the Commission recommended, among other things:

1. That the Government of India adopt a policy of Protection with discrimination;

2. That a permanent Tariff Board be set up to consider the claims of particular industries for protection; free of duty;

3. That raw materials and machinery be admitted;

4. That the Excise Duty on the Indian cotton industry be removed;

5. That no obstacle be raised to the free inflow of foreign capital, but that Government monopolies or concessions be granted only to companies incorporated and registered in India with rupee capital, and Indians on their directorates.

Five Indian members of the Commission (the President himself included among them) did not consider the verdict of the Commission wide enough, and supplemented the General Report with a minority dissent. The essence of their point of view will be interesting and useful to note, since that represents the demand of the most radical section of the Indian bourgeoisie. The dissenting minority wrote:

1. There should be an unqualified pronouncement that the fiscal policy best suited to India is Protection;

2. It is a mere commonplace to say that a rich India is a tower of strength to the Empire, while an economically weak India is a source of weakness…India would have been of far greater help to England during the war if the policy of Protection had been adopted at least a generation ago…This (revision of the tariff policy) would have been to her great advantage, and would have been beneficial to the Empire…India, inhabited by a fifth of the human race, can be of tremendous value, economic and political, both to herself and to the Empire, if development proceeds on the lines best suited to her conditions.

On the question of inflow of foreign capital, the minority appeared to differ from the view expressed in the general report. But this is what they said:

"We are unanimous in thinking that, in the interest not only of the consumers, but of the economic advancement of the country, it is essentially necessary that industrialisation should proceed at rapid paces…We will, therefore, state at once that we would raise no objection to foreign capital in India obtaining the benefit of protective policy, provided suitable conditions are laid down to safeguard the essential interests of India."

The conditions recommended by the minority, however, are the same as stated in the general report, namely: incorporation of companies in India with rupee capital and proportionate Indian directors.

In February, 1923, the Government of India declared the acceptance of the principle of discriminating Protection recommended by the Fiscal Commission as a whole. The Government Resolution, unanimously adopted by the Legislative Assembly, accepted "in principle the proposition that the fiscal policy of the. Government of India may legitimately be directed towards fostering the development of industries in India."

A few months later, acting upon the recommendations of the Fiscal Commission, the Government appointed the Tariff Board consisting of three members, two of whom were Indians. Thus an agreement was reached between the Indian bourgeoisie and British imperialism on the vital question of economic antagonism. Without vitally injuring imperialist monopoly, concession was made to Indian capitalism at the expense of the masses.

The Tariff Board began, of course, with the Iron and Steel Industry. The Tatas immediately came forward with the demand for a 33.5 per cent, duty on imported iron and steel. On the recommendation of the Tariff Board, the Government, in May, 1924, brought before the Legislative Assembly the Steel Industry (Protection) Bill, which set up a tariff varying from 20 to 25 per cent. on fabricated iron and steel entering the country and a large bounty on the production in India of railway waggons. The Bill authorised the Government to raise the duty in case one or more of the dutiable articles would be found to be imported into India at such a price as would be likely to render ineffective the protection intended. The Bill passed the Legislative Assembly with very little opposition. The Swaraj Party abandoned obstruction and voted with the Government.

The effect of Protection on the Indian iron and steel industry can be judged from the following estimated growth in the production of the Tata concern behind a tariff wall. Total production in 1923, 121,000 tons. It will increase to 250,000, 335,000, and 390,000 tons in the three succeeding years.

Hardly a year after the passage of the Protection Act, the Tatas declared that the duties did not give them enough protection and demanded its increase. The Government, with the sanction of the Assembly, granted the demand, not by additional duty, but by a substantial bounty on production to guarantee a fixed margin of profit.

The Tariff Board then recommended protection for the paper and cement industries, and is at present considering the claims of the coal mining industry. Since the industries, whose claims are to be investigated, are suggested by the Government, the protection for these industries is a foregone conclusion.

The climax of the policy, which has transformed the economic relation between the Indian bourgeoisie and British imperialism from antagonism to co-operation, was the abolition of the 3.5 per cent. Excise Duty on the Indian cotton industry. With the abolition of the Excise Duty, the premier industry of India also becomes "protected," because, as against the 3.5 Excise Duty, there has been a duty of 11 per cent. on the cotton goods imported, which duty remains in force. One of the outstanding Nationalist grievances has always been "the strangling of India's premier industry in the interest of Lancashire." The phenomenal growth of the Indian cotton industry does not justify the grievance. The industry, with an aggregate capital of Rs.300,000,000 (in round numbers) made a total clear profit of Rs.350,000,000 in the period of three years, 1919-21. Even when, in September; 1925, the workers (150,000) employed in the Bombay mills, were locked out to enforce a further wage cut of 11.5 per cent. (in addition to a 20 per cent. cut in 1924) on the pretext of "ruinous" trade depression, not less than half the mills were paying a fairly high rate of dividends. However, the abolition of the Excise Duty removed the last cause of friction between the Indian bourgeoisie and imperialism. The political effect of this step has been to split the Nationalist movement along the line dividing the big bourgeoisie and the petty bourgeoisie.

This concession again was made not in deference to the demands of the bourgeois Nationalists. Consideration of Britain's own economic interest was there, beside the subtle policy of politically isolating the petty bourgeois Nationalists by showing the Indian capitalists that their economic growth was not only possible, but even could be fomented within the orbit of imperialist economy.

In spite of the enormous growth of. native production, India still imports nearly 50 per cent. of her textile requirements, which until recently used to be supplied by Lancashire. But in the last years things have changed greatly. Japan has been breaking into the Indian market with alarming rapidity. Her share in the Indian trade increased from 0.3 percent., in 1914, to 9.1 per cent. in 1924. In 1925 the proportion was expected to be much greater. England cannot possibly compete with Japanese goods produced by sweated labour. Indian mills worked by coolie labour can alone do that; and the British bourgeoisie can always participate in the resulting profit by exporting capital to India to be invested in those mills. It is remarkable that before the. abolition of the Excise Duly was declared, the President of Bombay Millowners' Association, N.N. Nadia, visited England and had conferences with Lancashire millowners. In view of the stormy opposition of Lancashire when the duty on cotton goods imported into India was raised from 5.5 per cent. to 11 per cent., without a simultaneous increase in the Excise Duty, the gracious acquiescence of Lancashire to the abolition of the small Excise Duty without touching the comparatively high import duty is remarkable. The explanation of this changed attitude is provided by the following quotation from a statement issued by a joint meeting of the Manchester millowners convened immediately after the announcement abolishing the Excise Duty:

"If the industrial and general situation in India improves in the way in which it is so much desired, it is clear that the Lancashire industry may hope for better trade as a result. That there is a potential purchasing power in India sufficient to engage the producing power of both Indian and Lancashire industries, cannot be doubted… It is to be hoped that in the new situation now created we may find ourselves moving towards a position where the needs of the Indian market will be met to an increasing extent by her own manufacturers in their class of product, and by Lancashire in the types upon which she will naturally concentrate. Such a state of affairs would satisfy the legitimate aspirations of India, whilst not doing injustice to the Lancashire industry. If this situation, frankly recognised by both parties, could lead to the fostering of a better spirit of mutual sympathy, support, and accommodation, we would be prepared to accept any difficulties which may be imposed on Lancashire by the present decision in a generous manner." (The Economist, December 5, 1925, p.939.)

The situation is obvious: Indian and British capital made up their age-long quarrel and came to an agreement against the common foe, Japan. Referring to the abolition of the Excise Duty, The Economist (December 5, 1925) wrote:

"The fact of the matter is that times have changed. India has now fiscal autonomy, and it is useless for Lancashire to make protests against reductions in Excise Duties or increases in Import Duties. It must not be forgotten that this action of the Indian Government will probably be a more serious matter for Japan than this country. Lancashire realises more fully than ever that in the future she will have to concentrate her machinery more and more on the finer makes of cloth; leave the coarser materials to be made by the mills in the East. During the last few years leading authorities have noticed a desire on the part of Indian consumers of cotton cloth to purchase higher-quality goods. If this is maintained and extended, as there is reason for thinking that it will be, if the purchasing power of the natives is increased, then cotton manufacturers in this country have nothing to fear. It is primarily desirable that a spirit of friendship and goodwill should exist between the people in this country and of India." (Economist, December 5, p.939.)

The abolition of the Excise Duty made a tremendous impression in India. Though reluctant to say so openly, the Nationalists generally recognised it as an unmistakable sign of a "change of heart" on the part of Britain; and a "change of heart" was all that the Nationalists wanted as the price the British Government on the basis of the reformed constitution.

Another very significant event was the appointment of a committee to investigate and recommend under what conditions foreign capital should be admitted into India. The report of the committee accepts all the conditions laid down by the minority of the Fiscal Commission. This means that in the immediate future industrialisation of India will be carried on jointly by Indian and British capital.

It will be interesting to examine the considerations which induced British imperialism to radically change its economic policy in India, as a by-product of which change the aspirations of the native bourgeoisie have been to a great extent satisfied. The political consideration has already been mentioned. It is the recognition of the fact that the struggle for national freedom is no longer the political expression of the comparatively weak capitalist and intellectual classes. Its social basis has been enormously widened to include practically the entire population. Its objective programme, has, therefore, changed from constitutional agitation for economic concession and administrative reform to - Revolution. The quarrel between imperialism and the native bourgeoisie was over the division of the surplus value produced by the Indian masses. It will pay imperialism to lessen its lion's share to tiger's share, rather than to risk the loss of everything. British imperialism acted according to the Hindu dictum - "faced with total destruction, the wise forego half,"

An examination of the economic consideration will, however, show that it will not cost imperialism nearly as much to buy off the services of the Indian bourgeoisie, and even the upper stratum of the middle classes, as against the revolutionary danger coming from the masses. As a matter of fact, it will cost nothing.

The interest of British capitalism demands not only guarding of Indian markets against Japanese and American aggression; a continual extension of the market is also demanded. Markets must be found — created - for the British manufactures consumed in Central and Eastern Europe before the war. India offers great possibilities in that direction. But the economic ruin of the Central European countries greatly reduced the purchasing power of India. That means, just at the moment when British capitalism wants a bigger market in India, there is a shrinkage in the Indian market. In spite of a rise in the value of the total foreign trade of India (Rs.490,000,000 in 1922), the volume was 28 per cent. less than in 1914. The reason of this shrinkage is this: While on the average 60 per cent. of India's imports come from Britain, about 60 per cent. of her exports go to countries outside the British Empire. Since the war most of the European countries, that used to consume such a large portion of Indian exports, bought much less. The situation is illustrated by the following table:

Total amount of exports to 1914 1922
Austria and Hungary 99,748,000 8,355,000
Belgium 20,648,000 80,032,000
France 176,827,000 98,270,000
Germany* 263,558,000 162,777,000
Italy 78,351,000 58,378,000
Russia 24,542,000 35,000

* Germany's share went down as much as 13,859,000 in 1920.

This serious fall in her export trade naturally reflected upon India's ability to import, ultimately hurting the British manufacturers, since the major part of her import comes from Britain. All along a large surplus of export over import represented the proceeds of imperialist exploitation, because the major portion of that surplus was used off to liquidate "India's obligations in Britain." In 1920 the balance of Indian trade (a balance artificially maintained in the interests of imperialism) was upset. Imports showed an enormous (890,000,000) excess over exports. Next year the disparity was reduced to 440,000,000 by a corresponding reduction in imports. The situation was extremely alarming for imperialism. There was a heavy deficit in the budget. The representative of the Government of India, Charles Innes, informed the Imperial Economic Conference (London, 1923): "Thanks to the war and disorganisation caused by the war, we sell less and therefore we buy less. This decrease of trade hits us in many ways." Further on the same speaker explained the new economic policy of the Government of India. He said:

"I am aware that it has caused some alarm in this country, but if, as we hope, the result of this policy (of Protection) is to increase the wealth and productiveness of India, then those who trade with India have nothing to fear. Already that trade is considerable in volume, but it is small in comparison with the size of the country and the population. In India we have 315 millions of the people - roughly one-fifth of the human race, and if only we can raise the standard of living of these millions and increase their capacity to consume goods, India's potentialities as a factor in international trade and as a market are almost limitless."

In the new state of world economy, it has become impossible for the British capitalists to extract tribute from India in the shape of a large unpaid-for surplus of export over import. The greater part of the foreign market for Indian produce of raw material has been ruined almost beyond repair. Therefore, imperialist plunder must find a different expression. To arrest the shrinkage of British trade with India, caused by the reduction in the latter's export trade, her purchasing power should be otherwise increased. This can be done by raising the standard of living of the Indian people. The standard of living of the Indian people, again, cannot be raised unless the choking grip on her economic life is considerably loosened. On the other hand, since sufficient market for Indian raw produce cannot be found abroad, it must be created inside the country. This must lead to industrialisation. Industrialisation of a country with such enormous sources of raw material, cheap labour and potentially unlimited market, in its turn, will open up for British capital new fields guaranteeing the possibility of almost fabulous accumulation. British capital invested in India will extend the market for the production of home industries.

These are, then, the fundamental considerations which induced British imperialism to adopt a new colonial policy permitting the growth of Indian capitalism within certain limits.

To sum up. Since 1916, the British Government has introduced a series of economic measures that arc greatly beneficial to the Indian bourgeoisie. Consequently the antagonism between imperialism and Indian capitalism has been, at least for the time being, almost eliminated. The political result of this changed economic relation has been reflected in a steady decline of the Nationalist demand, and a pitiable bankruptcy of the mainly petty-bourgeois Swaraj Party, whose programme reflected purely capitalist interests.

What are the cardinal demands of the Nationalist bourgeoisie? Impetus to the industrialisation of the country; fiscal autonomy; protection. All these have been realised, incidentally in consequence of the attempts of British capitalism to overcome the serious post-war crisis by means of a readjustment of the economic basis of the Empire. The demand for self-government was put forward on the hypothesis that unless the native bourgeoisie possessed some political power, the programme of the free development of Indian capitalism could not have been realised. Now, it is demonstrated in practice that the economic programme of bourgeois Nationalism can be realised, in spite of the imperialist opposition to a rapid political change demanded by the petty bourgeoisie. In other words, the bourgeoisie has been convinced that its economic development is possible within the framework of imperialism.



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