India and the World Economy, 1850-1950

G. Balachandran, editor, India and the World Economy, 1850-1950. New York: Oxford University Press, 2005. xi + 319 pp. $20 (paperback), ISBN: 0-19-567234-8.

Reviewed for EH.NET by David Clingingsmith, Department of Economics, Harvard University.

This volume brings together eight previously published papers and book chapters about India’s international economy during the British Raj. Despite its sweeping title, the articles form three rather narrow thematic clusters: the transfer of wealth from India to Britain through the Indian fiscal system, Indian currency policy, and the impact of worldwide depressions on the Indian economy. Readers interested in these topics will find that the collection provides a useful overview of the existing literature. Nonspecialists may find it surprising that only three of the eight articles were written during the past twenty-five years. The cultural turn of the 1980s made economic topics unfashionable among historians of India. The subject of this volume, along with many others in Indian economic history, is ripe for renewal.

Observers of the Indian economy since late nineteenth century noted the Indian economy ran a persistent current account surplus with Britain. Nationalist economists, such as R.C. Dutt and Dadabhai Naoroji, viewed this surplus as a tribute India paid to Britain, and labeled it a “drain” of wealth responsible for the impoverishment of India. Editor G. Balachandran’s introductory essay notes that historical writing on India’s international economy continues to follow Dutt and Naoroji’s framing of this issue along with many others. K.N. Chaudhuri’s excellent 1968 article on the drain argues that the nationalist approach is more often a source of confusion rather than illumination. Examination of the current account is not the best way to assess the welfare implications of British rule, and a focus on this assessment obscures the role of current account dynamics for the Indian economy as a whole. Chaudhuri recommends an approach to India’s current account driven by economic theory and data, though subsequent authors only partly follow his suggestion. Balachandran’s introduction and the articles by Chaudhuri, John McLean, and Sunanada Sen do an admirable job of trying to understand the composition of this surplus in detail, with an eye to separating “legitimate” payments for services and debt from those that might properly be regarded as tribute. However, Sen discovers that during the building of India’s railways the Government of India tended to use current revenue to retire debt that paid India’s indemnity for the 1857 rebellion and to issue fresh debt to pay for the railways. The current account thus does a poor job at reflecting the purposes to which India’s revenue was put. It would be better to analyze the role of the current account and the suboptimal use of India’s revenues separately.

The articles by de Cecco, Tomlinson, and Balachandran concern Indian currency policy. De Cecco provides a detailed account of the efforts of the government of India to stabilize the falling rupee and establish the gold standard in India. Tomlinson and Balachandran examine the currency crisis of the early 1930s that led to the devaluation of sterling and the rupee and the pegging of the rupee to a sterling standard. All three articles focus particularly on the debates between and conflicting interests of the British and Indian governments. Tomlinson gives a particularly nice blow-by-blow account of the devaluation. Greater attention to the broader macroeconomic effects of currency policy would have been welcome, however, particularly since these impinge on the political considerations of both governments.

Amiya Bagchi’s rambling essay concerning the impact of the depression of 1873-96 on India’s domestic economy is perhaps the weakest analysis in the collection. It lacks a clear line of argument. Omkar Goswami’s detailed analysis of the 1930-39 depression in the jute-growing regions of Bengal presents is admirable attempt to work out an income statement for a typical jute grower and understand how the collapse of jute prices and exports in the 1930s accelerated the expansion of indebtedness, land transfers, and the growth of sharecropping in Bengal.

David Clingingsmith is a graduate student in the Department of Economics at Harvard University. He specializes in development economics and economic history, with a special interest in South Asia. He has recently been working on the economics of language consolidation in twentieth-century India and on the impact of the Hajj on Pakistani pilgrims.