Industrial Revolution and Deindustrialization of Indian History – An Overview

Abstract

The idea that India suffered deindustrialization during the 19th century has a long pedigree. The image of skilled weavers thrown back on the soil was a powerful metaphor for the economic stagnation Indian nationalists believed was brought on by British rule. However, whether and why deindustrialization actually happened in India remains open to debate. Quantitative evidence on the overall level of economic activity in 18th and 19th century India is scant, let alone evidence on its breakdown between agriculture, industry, and services. Most of the existing assessments of deindustrialization rely on very sparse data on employment and output shares. Data on prices are much more plentiful, and this paper offers a new (price dual) assessment of deindustrialization in 18th and 19th century India supported by newly compiled evidence on relative prices. A simple model of deindustrialization links relative prices to employment shares. We think the paper sheds new light on whether and when deindustrialization happened, whether it was more or less dramatic in India than elsewhere, and what its likely causes were. The existing literature primarily attributes India’s deindustrialization to Britain’s productivity gains in textile manufacture and to the world transport revolution. Improved British productivity, first in cottage production and then in factory goods, led to declining world textile prices, making production in India increasingly uneconomic (Roy 2002). These forces were reinforced by declining sea freight rates which served to foster trade and specialization for both Britain and India. As a result, Britain first won over India’s export market and eventually took over its domestic market as well. This explanation for deindustrialization was a potent weapon in the Indian nationalists’ critique of colonial rule (see e.g. Dutt 1906/1960, Nehru 1947). The historical literature suggests a second explanation for deindustrialization in the economic malaise India suffered following the dissolution of Mughal hegemony in the 18th century. We believe the turmoil associated with this political realignment ultimately led to aggregate supply-side problems for Indian manufacturing, even if producers in some regions benefited from the new order. While deindustrialization is easy enough to define, an assessment of its short and long run impact on living standards and GDP growth is more contentious and hinges on the root causes of deindustrialization.