How India was plundered by imperial Britain – Minhaz Merchant

Robert Clive & Mir Jafar

Why is compensation so important 71 years after the end of British colonial rule in India? It is important because just as Germany was forced to pay reparations to the Allies after World War I, justice must be served. – Minhaz Merchant

They came, they saw, they conquered—and they left with a fortune.

The story of how 190 years of British colonial occupation, from 1757 to 1947, impoverished India is one of the great untold stories of modern history.

Congress member of Parliament and former junior external affairs minister Shashi Tharoor tried valiantly to tell the story in his 2017 book, The Inglorious Empire: What the British Did to India, but gaps remain. What, for example, was the quantum in inflation-adjusted wealth siphoned out of India by the colonial British? What was the modus operandi colonial officials employed? Should India seek reparation—and how might these be credibly computed?

Some of these questions have now been answered by the economist Professor Utsa Patnaik. She recently published a collection of essays in Columbia University Press detailing the method of the two-century-long British theft, its computation at today’s currency value, and a possible mode of reparations.

Crucially, Professor Patnaik does what Tharoor in his otherwise fine book (Indian edition: An Era of Darkness: The British Empire in India) does not: she puts a figure on the British theft.

In an interview with the business daily Mint on November 19, 2018, Professor Patnaik said: “Between 1765 and 1938, the drain amounted to £9.2 trillion, taking India’s export surplus earnings as the measure and compounding it at a 5 per cent rate of interest. Indians were never credited with their own gold and forex earnings. Instead, the local producers here were ‘paid’ the rupee equivalent out of the budget—something you’d never find in any independent country.”

When Robert Clive defeated the Nawab of Bengal, Siraj ud-Daulah, in 1757 in the battle of Palashee (Plassey) by bribing the Nawab’s army commander, the traitorous Mir Jaffer, the real prize for the British [East India Company] was the right to collect tax from Bengali peasants, traders and farmers.

The Nawab had levied a modest tax, allowing peasants a reasonable living. By 1765, within eight years of Clive’s victory over the Nawab, all that changed. Taxes in Bengal were trebled.

Unable to eke out a living, 10 million people out of Bengali’s population of 30 million died of starvation in 1770.

Around 173 years later, in 1943, as the Second World War raged and the British Empire was on its last legs, Prime Minister Winston Churchill would withhold vital food grains from Bengal, leading to the Great Bengal Famine in which over three million people died.

But back in 1770, the British were focused on making money. Britain was still a relatively poor country. The industrial revolution was some years away.

The British were especially active in the African slave trade. Through much of the 1700s, Liverpool monopolised 55 per cent of the brutal Atlantic slave traffic. The United States was still a British colony. African slaves captured or bought by the British in Sierra Leone, Ghana and the Ivory Coast were shipped in British vessels to America, their arms and legs chained in manacles, lying one above the other. Dozens died during the horrific transatlantic journey.

Back in Colonial India

As Britain began to extort tax revenue from Indian peasants, the industrial revolution received a boost in terms of funds and raw materials from India. The British modus operandi was as simple as it was extortionate: it taxed Indian peasants 35 per cent of their income, three times what the Nawab of Bengal had taxed them. That excess tax revenue was then used by the British to buy Indian goods—spices, textiles and gold—which were in great demand in Europe and North America.

Thus British tax collectors used Indian money to buy Indian goods, exported them and pocketed the profit—with zero investment.

This system continued unimpeded virtually throughout the colonial period. In order to ensure that peasants, from whom they extorted steep taxes to buy Indian goods for export, did not realise how they were being cheated, a ruse was employed. The British tax collectors and British buyers of exportable goods were deliberately kept as completely separate entities so that no connection could be made by peasants whose taxes were being used to drain the country’s resources.

Professor Patnaik explains the scheme: “A large part of the producer’s own tax payment simply got converted into export goods, so the East India Company got these goods completely free. The later mechanism, after the British Crown took over (in 1858), used bills of exchange. The only Indian beneficiaries of this clever, unfair system of linking trade with taxes were the intermediaries or dalals. Some of modern India’s well-known business houses made their early profits doing dalali for the British.”

Were the British thus more rapacious than the Mughals? Unquestionably. They impoverished India in a way the Mughals did not. That does not absolve the Mughal Empire. It was savage, destroyed thousands of temples, and converted lakhs of Hindus through the sword or through financial inducement. The Mughals were a destructive, malignant force.

The British though exceeded them in the damage they did to India’s economy. Why then is there such little anger against the British while Muslim rule is (rightly) reviled?

The reason is complex. Many Hindus in the 1700s were fed up of the debauched Mughal Empire. They were relieved when the British defeated the Mughals. They regarded the British, who brought new technology and avoided religious conversions, as the lesser evil. There are miniscule Protestant converts in India compared to millions of Muslim converts. In a deeply religious country, that mattered.

Between two evils, there is little to choose but let Professor Patnaik have the last word: “Per capita annual foodgrains absorption in British India declined from 210 kg, during the period 1904-09, to 157 kg during 1937-41, and to only 137 kg by 1946. If even a part of its enormous foreign earnings had been credited to it and not entirely siphoned off, India could have imported modern technology to build up an industrial structure as Japan was doing. Instead the masses suffered severe nutritional decline and independent India inherited a festering problem of unemployment and poverty.”

Colonial reparations. How much? 

I wrote about new evidence that has emerged quantifying the economic value of plunder during the 190-year British occupation of India and asked how colonial reparations could be effected.

First, a brief rewind.

In 1988, I wrote a piece for The Illustrated Weekly of India called “Debt and Dishonour of the British Empire” in which I computed the colonial reparations due to India at around £3 trillion.

Nearly 30 years after that piece, Shashi Tharoor, former minister of state for external affairs, spoke on the subject at the Oxford Union in 2015 and later developed the theme into a book, excoriating the British Empire for its plunder of India. Shortly thereafter, I wrote for Daily-O: “Shashi Tharoor, the Congress MP from Thiruvananthapuram, in his book An Era of Darkness: The British Empire in India, says reparations aren’t needed; an apology and a token payment of one pound sterling a year for 200 years will suffice. He is wrong. Reparations are needed. An apology and tokenism won’t suffice.”

This is what Tharoor wrote in his 2017 book: “India should be content with a symbolic reparation of one pound a year, payable for 200 years to atone for 200 years of imperial rule. I felt that atonement was the point—a simple “sorry” would do as well—rather than cash. Indeed, the attempt by Minhaz Merchant to compute what a fair sum of reparations would amount to came up with a figure so astronomical—£3 trillion in today’s money—that no one could ever reasonably be expected to pay it. (The sum would be larger than Britain’s entire GDP in 2015).”

Tharoor is wrong on both the figure and the modus, as we shall shortly see.

Professor Utsa Patnaik has done painstaking research on the Indian economy which she began 50 years ago as a student abroad. She has arrived at an inflation-adjusted figure of £9.2 trillion for the wealth siphoned out of India by the British.

In an oped for the Hindustan Times published on October 30, 2018, Professor Patnaik elaborated on how she arrived at this figure: “How exactly did the British manage to diddle us and drain our wealth? That was the question that Basudev Chatterjee (later editor of a volume in the Towards Freedom project) had posed to me 50 years ago when we were fellow students abroad. After decades of research I find that using India’s commodity export surplus as the measure and applying an interest rate of 5 per cent, the total drain from 1765 to 1938, compounded up to 2016, comes to £9.2 trillion; since $4.86 exchanged for £1 those days, this sum equals about $45 trillion.”

Professor Patnaik goes on to explain the modus operandi: “The exact mechanism of drain, or transfers from India to Britain was quite simple. The key factor was Britain’s control over our taxation revenues combined with control over India’s financial gold and forex earnings from its booming commodity export surplus with the world. Simply put, Britain used locally raised rupee tax revenues to pay for its net imports of goods, a highly abnormal use of budgetary funds not seen in any sovereign country.”

“The East India Company from 1765 onwards allocated every year up to one-third of Indian budgetary revenues, net of collection cost, to buy a large volume of goods for direct import into Britain, far in excess of that country’s own needs. Since tropical goods were highly prized in other cold temperate countries which could never produce them, in effect these free goods represented international purchasing power for Britain which kept a part for its own use and re-exported the balance to other countries in Europe and North America against import of food grains, iron and other goods in which it was deficient.”

“The British historians Phyllis Deane and W.A. Cole presented an incorrect estimate of Britain’s 18th-19th century trade volume by leaving out re-exports completely. I found that by 1800 Britain’s total trade was 62 per cent higher than their estimate, on applying the correct definition of trade including re-exports that is used by the United Nations and by all other international organisations. When the British Crown took over from the East India Company (in 1858) a clever system was developed from 1861 under which all of India’s financial gold and forex earnings from its fast-rising commodity export surplus with the world was intercepted and appropriated by Britain.”

Professor Patnaik’s work, published recently by Columbia University Press, gained further international traction last week.

Jason Hickel, a columnist with The Guardian, wrote a piece for Al Jazeera on December 14, 2018, titled “How Britain stole $45 trillion from India: And lied about it”.

The piece laid bare the deceit with which Britain accomplished its plunder of Indian wealth over nearly two centuries and the disgraceful lack of acknowledgment in British society and among British historians of this crime.

The methodology

Let’s turn now to other methodologies to compute the imperial theft. The Gandhian economic philosopher J.C. Kumarappa in a detailed note to the Congress in 1947 estimated Britain’s colonial debt to India at Rs 5,700 crore. This was largely undisputed at the time by both the Indian and British authorities—but the matter never went into arbitration.

The exchange rate in 1947 was Rs 13.33 to one British pound. The debt of Rs 5,700 crore computed by Kumarappa in 1947 was therefore equivalent to 430 crore pounds sterling or £4.30 billion. Adjusting for inflation and 5 per cent compounded annual interest over 71 years, the total British debt to India in 2018 would be over £5 trillion.

Professor Patnaik’s figure of £9.2 trillion ($45 trillion adjusted for dollar-pound exchange rates as well as interest) is significantly higher because she correctly computes the cost of exports and re-exports by Britain using extorted tax revenue from Indian peasants, farmers and workers.

Moreover, the cost of human suffering, through famines and the loss of Indian lives in wars waged by the British to capture Indian territories, from Punjab to Assam, has not been computed.

The modus

Even if a consensus is arrived at on the final reparations figure, how would post-Brexit Britain pay? Consider the discounted figure of £5 trillion. Spread over 50 years, Britain would need to repay the Indian treasury £100 billion (Rs 9 lakh crore) a year—that is an entirely affordable 3 per cent of Britain’s GDP. With every passing year, as the British GDP grows, the burden on Britain as a ratio to its GDP will shrink.

Why is compensation so important 71 years after the end of British colonial rule in India?

It is important because just as Germany was forced to pay reparations to the Allies after World War I, justice must be served.

Colonial reparations by Britain have a precedent. In 2013, the British government paid $20 million to Kenyans tortured by British colonial forces during the Mau Mau uprising in Kenya in the 1950s. The amount was small, the precedent it set large.

American historian and philosopher Will Durant toured India in 1930. This is what he wrote: “The British conquest of India was the invasion and destruction of a high civilisation, utterly without scruple or principle, careless of art and greedy of gain, overrunning with fire and sword a country temporarily disordered and helpless, bribing and murdering, annexing and stealing, and beginning that career of illegal and ‘legal’ plunder which now (1930) has gone on ruthlessly for one hundred and seventy-three years.”

Colonial reparations to India won’t fully heal the wounds of India’s “high civilisation” that Durant wrote so feelingly about. But they will be a step in the right direction to correct a historical wrong. – Daily-O, 3 December 2018

»  Minhaz Merchant is the biographer of Rajiv Gandhi and Aditya Birla. He is a media group chairman and editor, and the author of The New Clash of Civilizations.

Robert Clive and famine victims across India

Robert Clive Quote