The role and scale of British imperial policy during the British Raj (1858 to 1947) on India's relative decline in global GDP remains a topic of debate among economists, historians, and politicians. Some commentators argue the effect of British rule was negative, and that Britain engaged in a policy of deindustrialisation in India for the benefit of British exporters which left Indians relatively poorer than before British rule. Others argue that Britain's impact on India was either broadly neutral or positive, and that India's declining share of global GDP was due to other factors, such as new mass production technologies or internal ethnic conflict.
Economic impact of British imperialism
William Digby estimated that from 1870 to 1900, £900 million was transferred from India. In the 17th century, India was a relatively urbanized and commercialized nation with a large export trade, devoted largely to cotton textiles, but also silk, spices, and rice. India was the world's main producer of cotton textiles and had substantial export trade to Britain as well as many other European countries, via the East India Company. According to some commentators, after the British victory over the Mughal Empire (Battle of Buxar), India was deindustrialized by the East India Company, and then the British.
In contrast, historian Niall Ferguson argues that India benefited from the British investment of £270 million in Indian infrastructure, irrigation, and industry by the 1880s (representing nearly one-fifth of all British investment overseas). That amount reached £400 million by 1914. He also writes that the British increased the area of irrigated land eight-fold, to 25% of all land. The village economy's share of total after-tax income rose under British rule from 45% to 54%. Ferguson argues that since the sector represented three quarters of the entire population, their rising share reduced income inequality in India.
Impact on trade
The British East India Company had forced open the large Indian market to British goods, which could be sold in India without tariffs or duties, compared to local Indian producers who were heavily taxed. At the same time, protectionist policies in Britain, such as bans and high tariffs, were implemented to restrict Indian textiles from being sold there. The British enforced tariffs and duties of 70-80% on textiles produced in India, making them impractical for export. In the early 1700s, India had a hold of 25% of the global textile trade. Raw cotton, however, was imported without tariffs from India to British factories. The factories manufactured textiles from Indian cotton and sold them back to the Indian market. British economic policies gave them a monopoly over India's large market and cotton resources. India served as both a significant supplier of raw goods to British manufacturers and a large captive market for British manufactured goods. With the export of manufactured goods rendered unviable over the period of British rule, India's share of global manufacturing exports dropped from 27% to 2%. On the contrary, exports from Britain to India soared with duty-free goods that Indian goods could no longer compete with on quality or price.
The damage to the textile industry went beyond just a decrease in production and export. As industrial production was severely disrupted, Indian workers were forced into agriculture at levels unsustainable by the land. Rural wages were then driven down by the newly crowded market of agricultural workers. Additionally, these workers used cloth making as a backup source of income if weather affected their crops. This was no longer a viable option for them. Ultimately, poverty in rural India was catalyzed by the policies deployed by the British.
Taxation
Taxation by the British, usually 50% of income, was so burdensome on the population that they were forced to flee their lands. This form of revenue generation was a departure from the practices deployed by Indian rulers in the past, who primarily raised funds through global and regional trade networks rather than through taxing farmers. Under the zamindari revenue system deployed by the British, farmers were no longer taxed a percentage of their crops produced. Rather, they were taxed a percentage of the land rent payments, regardless of the success or failure of the crops. According to estimates by the British, agricultural taxes were two to three times higher than before British rule, and the highest in the world.