Industry and foreign trade

India's world-famous handicraft industries declined under British rule, and no modern industry grew up to take their place. Colonial policy had a two-fold motive:

• to get raw materials from India cheaply for Britain's factories; and
• to use India as a large market for British manufactured goods.

Cheap machine-made cloth from Britain killed the market for India's handwoven cloth, and many skilled craftsmen lost their livelihood.

Some modern industry did begin, mostly in the second half of the nineteenth century: cotton textile mills, mainly in Maharashtra and Gujarat, and jute mills, mainly in Bengal. The Tata Iron and Steel Company (TISCO) was set up in 1907. Later came sugar, cement and paper. But there was hardly any capital goods industry (making the machines that make other goods). The public sector was limited to railways, power, communications and ports.

Foreign trade followed the colonial pattern: India exported primary products (raw cotton, jute, silk, sugar, indigo) and imported finished goods (cotton cloth, machinery). More than half of India's trade was with Britain. The opening of the Suez Canal in 1869 shortened the route between Britain and India and tightened Britain's control over this trade.

India earned a large export surplus (it sold more than it bought). But this surplus did not come back to India. It was used to pay for the British government's office in Britain, for wars fought by the British, and for invisible imports (services). This flow of wealth out of the country is called the drain of Indian wealth.