Among the best books on the subject on colonial economics is, by scholarly consensus, R.P. Dutt’s India Today. The book uses Marxist theory in a thorough analysis of the economic exploitation that was the basis of colonialism. The book charts out three successive phases of British exploitation in the Indian subcontinent.
The first of these phases is what concerns us today. This phase has been sketched out from 1757 to 1813. This has been called by Dutt the ‘mercantilist’ phase. This period was marked by direct trade and plunder. The East India Company was in charge for this period and directly controlled trade. Not only did it control trade, it in fact enjoyed a monopoly.
Dutt analyses the same by using the theory of surplus value from Marxist economics. The East India company invested the ‘surplus’ of their revenues in purchasing raw materials at very very low prices.
With the Industrial revolution taking place in Britain, India rapidly transformed into a new market – a market for Manchester textiles, among other things. India became a source for raw materials and with this, traditional art work, handicrafts, etc died out or were displaced. According to Marx, this was the period when “the homeland of cotton was inundated with cotton.” This was a period that witnessed a by and large export of capital, control of Banks and investment by the British.
It must be noted, however, is that while all of these analyses made by Dutt is original and thorough, Dutt’s periodisation seems over-schematic. It makes sense too, for purposes of study, divide the British rule into stages, it is better to not see these as rigid divisions. It would be best rather to think of those divisions as overlaps instead of rigid impermeable schemes.