Till 1757 the East India Company worked as a trading organization by selling Indian goods abroad. By that time Indian goods like textiles, spices, etc. had tremendous demand in European markets. Profit of the company depended on the volume of Indian goods carried and sold in European markets. Therefore, not only the British traders but also the European counterparts, attempted to find new markets for Indian goods.
As a result, export of Indian goods increased and so also their production. Growth of foreign trade through European traders brought economic prosperity for the Indian rulers, manufacturers and people. Further, the East India Company tried to win the good will of the Indian rulers in order to continue trade and commerce.
On the other hand, the rulers granted permission to the company for economic prosperity. Goodwill of the rulers and good behavior of the company resulted in the establishment of factories or trading centers in different parts of India. But subsequent political developments in India and also in Europe changed the relations between the Indian rulers and the company.
After 1757 the company was put in an additional advantageous position due to its political control over Bengal. First the company found the revenues of Bengal as capital and invested it for export of Indian goods. Second, previously the relation of the company with the Indian manufacturers was determined by the nature of permission granted by the Indian rulers. After 1757, the company became the master and used its political power to dictate terms of trade with the Indian manufacturers.
Specifically the weavers of Bengal were the worst affected class. They were forced to hire their labour to produce for the company at a price always profitable to the later. Gradually they were compelled to work exclusively for the British and lost their freedom of labour. The weavers were prohibited to work for Indian merchants for a higher wage.
Finally, the British trade policy drove the Indian as well as non- English merchants out of trade in India. On the other hand, the company officials had the exclusive trading right with the raw cotton at a price much higher than the actual one. Hence, the weavers of Bengal and India were worst affected both as seller and buyer by purchasing raw cotton at higher price and by selling textiles at a lower one. In both cases, prices were dictated by the British.
At the same time, the Government in England vigorously pursued protective trade policy of survival of the British textiles and to keep Indian textiles out of competition. As a result of Industrial Revolution in England, production of machine made textiles was increasing and the Government of England was apprehensive of its survival in the market at the face of stiff competition from Indian quality products.
Thus, the Government imposed heavy duties on Indian textiles entering into English market. The intention was clear to keep Indian textile products out of English market by making it costlier.
In the meantime England had emerged as a great colonial power having overseas empires all over the world. Each overseas empire provided England with a monopoly foreign market. To meet the demands of those markets production expanded rapidly in the British industries by the use of latest technologies and machines.
As a result, British economy flourished under colonial pattern of trade. Under this trade system, Britain told her manufactured goods to those colonies and in turn the colonies exported agricultural products and other raw materials for colonial trade. In the process, India became a market for the British industrial products and a rich field to supply raw materials.
Also the industrial Revolution encouraged the emergence of a powerful class of manufacturers. This class had their influence on administration and politics of England. Very often the interests of this manufacturing industrial class were reflected in the national policies of Britain.
This class was determined to curb the monopoly trade right of the East India Company. This class promoted industrial manufacture, not trade. Thus, the industrial manufacturing class influenced the Government in England for export for their products to overseas colonial markets and for imports of raw materials from colonies.
They succeed in compelling the East India Company for annual export of their products to India even at a huge loss to the company. Finally, the activities of the Company were controlled by the Regulating Act of 1773 and Pitt’s India Act of 1784. The Company was subordinated to the British Parliament and India had to serve the interests of the ruling class. By the Charter Act of 1813, the trade monopoly of the Company in India is abolished. Indian trade is opened to all British people.
However, trade with China and trade in tea were left under the Company’s monopoly right. But after twenty years, the Charter Act of 1833 put an end to the Company’s monopoly trade in tea and with China. By this time, Indian manufacturers were replaced by the British manufacturers and British industries flourished at the expense of Indian industries.
From 1833 onwards free trade policy accelerated the process of converting “agricultural India to an economic colony of industrial England.” Under this policy their remained no restriction on entry of British goods to India.
More important was the unequal competition between Indian handicraft goods and British machine-products. In addition, England imposed heavy import duties on the Indian goods entering into the British market. Sometimes, the import duty was found four times more than the cost of production. While the value of the imports to India increased rapidly, foreign markets were closed for Indian goods due to imposition of heavy import duties.
By this time also the British had introduced certain changes in social and cultural life of Indians. Out look and attitude of Indians had changed to a great extent along with the taste for Western goods and British goods flooded Indian markets. With the expansion of the British Empire in India, new markets were opened for British goods. For all these reasons, British goods entered Indian market freely or on payment of nominal tariff.
One result was inevitable; unfair competition between the machine – products of Britain and Indian handicrafts. Such competition closed all possibilities for survival of the latter. At last, India imported agricultural products like raw cotton, indigo, tea and food grains to meet the needs of the British industries as well as of the British merchants and flew out of India. Thus, the British economic policies transformed “India into a consumer of British manufacturers and a supplier of raw materials.”