Clingingsmith, David and Williamson, Jeffrey G. (2008) “Deindstrialization in 18th and 19th century India: Mughal decline, climate shocks and British industrial ascent”, Exploration in Economic History, 45/3, 209-234.
Between 1700 and 1900, India went from being an industrial powerhouse to forgotten backwater. Why didn’t India manage to retain its edge and how did Britain overtake the giant?
Phase 1: politics and climate change
The collapse of the Mughal Empire deprived landowners, peasants and merchants from the protection of a mighty central state. It has been commonly assumed in the literature that it led to a reduction in agricultural and consequently an increase of the price of grain. That in turn put upward pressure on the nominal wage in the textile industry (p.211). This series of events – noted by East India Company officials as early as 1720 – coupled with an increased English competition “put downward pressure on profits from both below and above” half a century before the Industrial Revolution (p.212).
However recent historiography has reassessed the impact of the collapse of the Mughals: “the successor states provided a greater degree of political continuity and stability than was previously thought to have existed”. But Clingingsmith and Williamson maintain that the end of such a powerful must have had a very important impact on the country (p.213). Taxes levied by local strongmen and rents went up (from 40 to around 50% of a peasant’s income as compared to 5 to 6% in China) thus crushing any ambition the peasantry may have had to invest.
Productivity ought to have suffered, grain price may have increased by 30% in the 1740-50s. Cultivate area and trade receded (p.215). A episode from El Niño may have caused the monsoon to fail in the second half of the 18th century, which in turn reinforced the impact of the Mughal collapse on agricultural productivity (p.216).
Phase 2: globalization shock
“Around the beginning of the 19th century, the fundamental economic dynamic underlying deindustrialization in India changed from agricultural productivity decline to globalization shock”. After 1810, the terms-of-trade shifted in India’s favour (i.e. imported goods became significantly cheaper compared to domestically produced wares). To make matter worse numerous countries rose their tariffs on imported manufactures costly India dearly in terms of market shares while India – now under British rule – could not reply in kind.
As if it was not enough the transport revolution increased international demand for Indian commodities (opium, silk, cotton, sugar) thus creating a Dutch disease-sort of situation: “the import-competing sectors slumped, the export sectors boomed, and deindustrialization was reinforced (p.217). By 1811, commodities accounted for 57% of India’s exports.
It is estimated that over the 19th century, the proportion of the workforce involved in industry went from 15-18% to 10. But this fall may look more impressive that it actually was since a lot of those who abandoned their industry job were only working part-time (p.218). The larger share of that collapse occurred during the first half of the century (p.219). Rural female spinners were those the more directly hit.
This phase of deindustrialization can be directly linked to the arrival of cheap factory-made English cloth. India’s share of the world manufacturing output went from over 25% in 1750 to 5-6% in 1800 and 2,5% in 1860. The country suffered disproportionally from the globalization as compared with China and other “peripheries” (p.220). This collapse went along a fall of real wages by 30 to 45% from 1600 to c.1790 (p.221). Furthermore, continuing bad weather prevented the Indian agriculture to recover, the country slowly started to re-industrialize only after 1913 (p.223). The integration of India to the world’s grain market allowed prices to go down but industrial output did not grow as a result (p.224).
The wages in the textile industry only started to rise noticeably after 1765. This trend accelerated until 1810, by that time, wages had increased by 200%. This phenomenon can be easily considered as the result of the increase of grain prices (p.225). Meanwhile, textile prices were going down, they halved from 1785 to 1810 (p.226). The increased international demand for Indian textiles (mostly from the East India Company) remained too limited (c.6% of domestic market) to compensate this trend (p.229).