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Maritime Commerce, 1750–1947

MARITIME COMMERCE, 1750–1947

MARITIME COMMERCE, 1750–1947 India was an open economy for most of this period as controls over external transactions were confined to the two world wars and their aftermath, and the 1930s depression. Yet even at its height, India's foreign trade accounted only for a small proportion (15–17 percent) of its estimated national income. However, from the late nineteenth century, foreign trade affected the economy and people's livelihoods disproportionately because of its impact on money supply, and the colonial government's determination to collect India's external obligations, or the notorious "home charges," at any cost.

The story of India's foreign trade from 1750 to 1947 may be described most simply as its transformation from an exporter of fine handicraft manufactures, for which India was traditionally known, to an exporter of raw materials and an importer of cloth and other industrial manufactures. This transformation took place chiefly between 1815 and the 1870s. In the preceding decades India's external trade largely followed traditional patterns, while from the 1880s it resumed exporting manufactures in modest quantities. Changes in the external and domestic environments and the organization and financing of Indian trade also influenced the volume, composition, and structure of trade, and its overall impact on the economy.

1750–1815

Until the nineteenth century, India's great coastal trading regions—Bengal, the Coromandel coast, the Malabar coast, and Gujarat—were major nodes in a worldwide trading and financing network with dense concentrations in other parts of Asia. This network attracted diverse participants, from the large European companies to numerous indigenous traders, some of whose operations were equally diverse. Our knowledge of these networks and their activities remains incomplete, but it is clear that cotton textiles were the principal Indian export during this period. In 1811–1812 they accounted for a third of the estimated value of India's exports, followed by opium (about a quarter) and indigo (about a fifth). The share of cotton cloth would have been greater in earlier decades.

Indian trade was also geographically well distributed. Even for Bengal, where the British East India Company was predominant, the American share in imports was 23 percent between 1799 and 1804, exceeding by a small margin the share of imports recorded as having been shipped from London. In the mid- to late 1790s, when the American share was only 13 percent, imports from London made up only a fifth of Bengal's total imports, with other Asian ports accounting for over half. Though a bigger share of Bengal's exports went to Britain (about 35–40 percent) during the late 1790s and early 1800s, America and other ports, including those in Asia, accounted for 55 to 60 percent of the wares leaving the region.

The organization and financing of India's overseas trade during these decades witnessed the growing political and trading ascendancy of the British East India Company and the eclipse of all other European trading companies. Yet as late as 1790, trade carried or licensed by the British East India Company accounted for only about 40 percent of India's commerce with Europe. The East India Company's acquisition of the revenues of Bengal, after which its surpluses and servants' private profits displaced imports of bullion as the means to pay for Indian exports, marked a more profound transformation.

1815–1870

Striking evidence of the structural transformation of Indian exports during this period is offered by the sharp drop in the share of cotton textiles from about one-third in 1811 to less than 15 percent in 1815. By the 1870s this proportion had fallen below 3 percent. Raw cotton, on the other hand, expanded its share from about 5 percent in 1811 to 35 percent in 1870, the rise being particularly steep in the 1860s because of the U.S. Civil War. Indigo remained an important export in the first half of this period. Opium exports, principally to China, gained ground rapidly after the 1820s and emerged as India's largest single export by the mid-1830s. Britain's opium war with China further confirmed this status and helped maintain it through the next two decades.

The transformation of India's trading basket was mirrored in the composition of its imports. The share of cotton textiles rose from around 5 to 10 percent in 1820 to nearly 50 percent in 1870. Cotton twist and yarn was another major import, its share rising to about 13 percent by the 1870s as India's craft-weaving sector adapted to the challenge of industrial competition by switching to cheaper imported inputs.

The reversal of the trading relationship between India and Britain since 1815 was starkly reflected in the imbalance that developed between the sources of India's imports and the destinations of its exports. By the 1820s Britain's share of Indian imports had risen to over 60 percent. By 1870 this proportion stood at 80 percent. However, Britain now accounted for only about 45 percent of India's exports. India therefore ran a substantial trade deficit with Britain. However, it continued to run substantial trade surpluses overall. Only a small part of this was now liquidated by imports of treasure, the larger part (for example, more than 70 percent in 1828) being used to finance unilateral transfers to Britain. Until 1833 the latter were mainly the profits of the East India Company and private remittances of its officials. Thereafter, unilateral transfers comprised the British "home charges" that included, apart from private remittances by British officials and traders, service transfers, interest payments on railway and other loans from the 1860s, and British civil and military pensions.

Large opium exports to China were a major feature of Indian trade from 12 million rupees in 1820 to 143 million rupees in 1880 and transforming China into India's second-largest overseas customer. Britain, however, ran a large deficit with China because of its enormous imports of tea and silk. The opium trade thus formed the third side of the triangular pattern of settlements that enabled Britain in one stroke, as it were, to collect its tribute from India and liquidate its deficit with China.

1871–1947

During these decades India's trade witnessed a slow structural shift. Some staple exports of the past, such as opium and indigo, were replaced by new commodities, mainly raw jute, tea, and wheat, the last two each accounting for 10 percent of India's exports on the eve of World War II. A depreciating rupee, tied to silver until 1893, also stimulated the export of manufactures such as jute fabrics and cotton yarn and cloth. Assisted by the wartime disruption of Britain's staple export trade and the trade boom of the mid-1920s, exports of cotton cloth and jute goods expanded to account together for about 30 percent of Indian exports in the mid-1920s. Both of these exports, however, were hit hard by the global depression, during which primary or semiprocessed exports, such as raw cotton, hides and skins, seeds, and tea, reclaimed their former preeminence. Domestic industrialization had a more enduring effect, however, on the composition of imports. The share of cotton cloth declined steadily from a peak of 47 percent in 1871 to about 13 percent by the mid-1930s. Machinery also accounted for a growing share of imports on the eve of World War II.

Britain's importance to India's external trade declined steadily in the half century after 1871, its share of imports falling from 85 percent to 61 percent between these dates, before plummeting to 37 percent in 1939. Britain's share of Indian exports fell from 54 percent to 24 percent between 1871 and 1931. Britain's decline was offset by the rise of Japan and the United States as India's trade partners during the interwar years.

Trade and economic transformation

Between the 1870s and the 1940s, a modern global economy had emerged, which then suffered disruption and collapse in the wake of World War I and during the interwar depression. These decades witnessed the industrial transformation of many countries, notably the United States and Japan. India's economic and trading transformation was unimpressive, however, even by comparison with countries such as Australia and Brazil.

Viewed from the perspective of external trade and economic relations, India's lack of freedom to adopt tariffs until 1919, and restricted freedom thereafter, and Britain's enduring control of short-term macroeconomic instruments such as the exchange rate must count as key factors. The institutional transformation of the link between foreign trade, the monetary system, and the domestic economy after 1900, when remittance instruments sold in London replaced shipments of precious metals as the principal means of financing Indian trade, also retarded the development of India's financial system. The control that Britain thereby came to exercise over metallic flows to India was used to relieve the former's external financial needs in the 1920s and the 1930s, at the expense of growth and incomes in India. India's large gold exports in the 1930s, arising from rural economic distress, were viewed by economist John Maynard Keynes as a major factor in promoting Britain's swift recovery from the depression, while India's economy languished deeper in the slump.

G. Balachandran

See alsoTrade Policy, 1800–1947

BIBLIOGRAPHY

Balachandran, G. "Introduction." In India and the WorldEconomy, edited by G. Balachandran. Delhi: Oxford University Press, 2003.

Chaudhuri, K. N. "Foreign Trade and Balance of Payments." In Cambridge Economic History of India, vol. 2: c. 1757–c. 1970, edited by Dharma Kumar. Cambridge, U.K., and New York: Cambridge University Press, 1983.

Prakash, Om. The New Cambridge History of India, vol. II.5: European Commercial Enterprise in Pre-colonial India. Cambridge, U.K., and New York: Cambridge University Press, 1998.

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