EH.net is owned and operated by the Economic History Association
with the support of other sponsoring organizations.

Law and the Economy in Colonial India

Author(s):Roy, Tirthankar
Swamy, Anand V.
Reviewer(s):Hejeebu, Santhi

Published by EH.Net (August 2017)

Tirthankar Roy and Anand V. Swamy, Law and the Economy in Colonial India. Chicago: University of Chicago Press, 2016. x + 240 pp. $45 (cloth), ISBN: 978-0-226-38764-2.

Reviewed for EH.Net by Santhi Hejeebu, Department of Economics and Business, Cornell College.
Historical and developmental economists have been captivated by the interplay between institutions — from cultural values, beliefs, and norms to formal property rights and the rule of law — and economic growth. For the last three decades, researchers have blurred the traditional boundaries of economics to rigorously explore why the blessings of economic growth fall so unevenly across the world. What role did European imperialism play in this disparity? How might a nation’s history with European colonial rule shape its growth trajectory in its post-colonial era? Onto this vast intellectual canvas, Tirthankar Roy and Anand V. Swamy masterfully illustrate the evolution of legal institutions in British India from 1772 to 1947. With an eye toward evaluating the impact of this inheritance on today’s Indian economy, Roy and Swamy showcase the limits of imported institutions.

The first chapter frames “the problem”: Contemporary India’s legal infrastructure is in urgent need of reform. Today, many regard it as restrictive, cumbersome, backlogged and, according to the McKinsey Global Institute, a significant drag on economic growth. Roy and Swamy believe the system’s weaknesses originate, partly, in colonial law and legislation. They identify two hypotheses that link the economic quality of legal institutions with European colonial rule. The first conjecture, “extractive states,” correlates strong, growth-inducing institutions with mass European migration and settlement into the colony. The second hypothesis, dubbed “legal origins,” posits that economies importing British (common law) institutions would have stronger economic performance than those importing French (civil law) institutions. Both hypotheses, the authors demonstrate, fit the Indian case poorly.

The second chapter broadly narrates the evolution of British law on the subcontinent. Beginning with the period from the East India Company’s mayoral courts of the early eighteenth century to the creation of the cosmopolitan, Anglo-Indian legal codes of the late eighteenth century, the colonial codifiers’ perspective dominates the discussion of how values and norms were understood and characterized. The authors portray precolonial systems of law and justice as a “vacuum” (p. 16) in which the imperial authorities attempted to build an innovative, new system providing both access and due process to all litigants, while leaving alternative, local juridical practices in place. During the first half of the nineteenth century, this syncretic infrastructure grew in complexity. Presidency councils promulgated laws that varied with litigants’ local custom and religious practices, Parliamentary Acts (when specifying application to the colonies) remained in effect, Mughal civil and criminal courts operated in some regions, and everywhere English common law filled in the blanks. The second half of the nineteenth century witnessed a spirit of reform, a more integrated and hierarchical system of courts and legislatures, and the ascension of the idea “that lex loci could not be constructed on the foundation of Hindu or Islamic law” (p. 25).

The next six chapters focus on specific domains of law — both statutory and case law — that bear particular importance to private economic development and the fiscal health of the colonial state. These domains include land rights, property rights, labor law, contract law, and corporate law. Upon starting these sections, I marveled at the scope of the inquiry. Having dispensed with the broad hypotheses on imperial institutions and growth, could the authors make the whole cohere? How would Roy and Swamy synthesize and qualitatively evaluate colonial India’s changing legal infrastructure, given the breadth of legal domains under review, given their very long temporal horizon as well the significant variations in customary practices within the country and across industries? Each chapter corrals mature literatures and draws evidence from Victorian gazetteers, law commission reports, and case compendia. Each chapter describes how colonial legislative acts affected an area of economic relations. Throughout these chapters, contract theory often disciplines the discussion by identifying how law altered incentives between transacting parties and reconfigured the sharing of risk between them. The project is wonderfully ambitious.

In the two chapters on land, the authors, following the seminal work of the late Ratnalekha Ray, unpack the traditional land “ownership” terms of zamindari or raiyatwari. The authors deconstruct ownership as a set of use rights, or dimensions of control, over the asset. From an economic development perspective, these dimensions of control include 1) proprietorship, in other words liability for paying tax; 2) tenancy, the right to occupy land; and 3) transferability, the ability to alienate the land or use it as collateral in credit transactions. This characterization gives rise to a wider set of possible tenurial relationships than the traditional dichotomy. The discussion carefully integrates landmark legislation — the Permanent Settlement Act (1793), Bengal Tenancy Act (1885), Madras Estates Land Act (1908), Central Provinces Tenancy Act (1898), Deccan Agriculturists’ Relief Act (1879), Usurious Loans Act (1918) — and key court cases, many introduced to the literature for the first time. In each case, law recalibrated bargaining power between owners and tenants and between lenders and borrowers. In aggregate, did the Raj’s land regulations aid economic growth? The authors cautiously answer: it depends on when and where.

Chapter 5 examines the succession of property with particular emphasis on joint versus individual rights. Early British codifiers recognized that secure property rights, based on Hindu or Muslim religious codes, were already in effect. This chapter tells the story of colonial rulers unevenly incorporating Hindu and Muslim personal law into the new Anglo-Indian jurisprudence.

Chapter 6 explores labor law, beginning with the grim reality of slavery and bonded labor and delving more deeply to the case of penal contracting in the Brahmaputra and Surma Valleys. The authors maintain a clinical attitude toward penal contracting, explaining the persistence of legislation allowing such harsh labor contracts as a solution to a contractual problem. The chapter also addresses legislation aimed to regulating modern factory labor in Bombay and Bengal. The factory acts might well have created an industrial labor force, protected from internal competition, had the acts been enforced.

Chapter 7 examines contract law, the legal recognition and enforcement of privately-arranged agreements. As in earlier chapters, this one begins with the late eighteenth century exploration of a “Hindu law of contract” (p. 124) followed by the revealed inadequacy of this “artificial” legal inheritance. Prior to specific contract legislation, silk, hides, cloth and other indigenous trades flourished without resort to formal contracts through intermediaries who could exert social control along the supply chain. In the case of indigo, from roughly 1830 to 1860, the contract problems between peasant cultivators and indigo planters often devolved into coercion and oppression. According to the authors, a key legacy of the Blue Mutiny of 1860 was the Indian Contract Act of 1872. The authors doubt the Act’s contribution to economic growth, given the availability of informal and extralegal mediation and given the limited number of disputes that reference the Act.

Chapter 8 addresses laws affecting organizational forms including partnerships, the managing-agency contract, and joint stock corporate forms. Roy and Swamy describe Hindu partnerships as extensions of the Hindu joint family and governed by property and succession laws. Industrial firms in Bombay and Calcutta preferred the limited liability, joint stock organization form. Synthesizing both family partnership and the joint stock corporation was the popular, opaque, and uniquely Asian business form called the managing agency. The authors carefully analyze the shareholders’ opportunities and risks in managing agencies and the role of law in allocating rights between owners and agents. In both chapters 7 and 8, numerous legal cases effectively demonstrate the law in practice.

The final substantive section, chapter 9 provides a macro view of the evolution of law and litigation over the colonial period. The steady growth in judicial capacity, legislation, and litigation is illustrated in a series of time series graphs. The authors discover that in the early twentieth century, the majority of appellate civil suits were tried under procedural laws rather than laws pertaining to property, contract, or agency. Disputes over process gummed up the courts, a trend that has persisted to the present day. The brief conclusion notes five additional points of continuity or discontinuity between past and present.

This extraordinary synthesis of legal and historical scholarship should be read by anyone serious about the capacity and limits of law in shaping economic development. The Raj is portrayed here as improvisational, often slow and reactive, accommodating conservative impulses within India, while also embracing modernist trends from without. The recurring use of agency theory analysis and case law deliver analytical clarity and thick description. The work will be essential reading for future students of Anglo-Indian law.

While the project does a stellar job of characterizing formal institutions, the approach has its limitations. The framework largely ignores the informal economy and the multifarious, decentralized, informal systems of conflict remediation and heritable rights. To the degree that Anglo-Indian law failed to act as a centripetal force on the colonial economy, the study leaves critical institutions unnamed and unexamined. The variety of indigenous remediation systems — especially those that did not require literacy, travel to district courts, and payments to vakils — remains outside the scope of the study. It is a critical omission given that, in the study period and even seven decades after independence, the vast bulk of Indian employment remains in unorganized sectors, beyond governmental writ. As Rajalaxmi Kamath, of IIM Bangalore recently noted, the informal sector is “far from being ‘un-legislated’… [and] is very heavily regulated by social structures”[1]. A survey of such structures and their complex interactions with the legal infrastructure remains to be done. Future scholars will thank Roy and Swamy for an important point of departure.

Endnote:
1. Rajalaxmi Kamath (June 15, 2017), “India’s Informal Sector: The Vilified-glorified ‘Other’ Side of the Formal,” http://www.forbesindia.com/article/iimbangalore/indias-informal-sector-thevilifiedglorified-other-side-of-the-formal/47245/1. Retrieved July 30, 2017.
Santhi Hejeebu is Ringer Distinguished Professor of Economics and Business at Cornell College. Her recent publications include, Humanism Challenges Materialism in Economics and Economic History, Chicago: University of Chicago Press, 2017, co-edited with Roderick Floud and David Mitch.

Copyright (c) 2017 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net). Published by EH.Net (August 2017). All EH.Net reviews are archived at http://www.eh.net/BookReview.

Subject(s):Government, Law and Regulation, Public Finance
Geographic Area(s):Asia
Time Period(s):18th Century
19th Century
20th Century: Pre WWII