The nineteenth century

Since the middle of the nineteenth century, when the movement for independence gained momentum, the debate between different currents of thought in India was usually expressed in relation to the functioning of the British government in the undivided Indian sub-continent.

Against these movements, many thinkers studied the systemic issues at hand, the method of economic analysis and its uses, including varieties of historical economics. Most of the prominent leaders highlighted India’s rich tradition of knowledge in the ancient and later periods. According to Shib Chandra Dutt (1934, 5), during this early period, ‘a considerable portion of economic thinking in India is of an economic-political character. To socio-economic questions a part of the thinking has addressed itself, while economic history has arrested the attention of a large number of scholars’. Thus, the first new wave of Indian economic thought was born against the backdrop of the emergence of systemic social reforms as well as the independence movement.

A basic impetus for social reforms in India was given by Rammohan Roy (1772—1833), who ‘stressed the importance of private property’ in general, and particularly for women as early as 1822 (Spengler, 1971). In his 1822 work, Brief Remarks Regarding Modern Encroachments on the Ancient Right of Females according to the Hindu Law of Inheritance, (3—4), Roy argued that in ancient India women had property rights in an absolute form, and he referred to key legal authorities as support.

Following in the footsteps of Roy, there were other pioneers of Indian economic thinking. A promising new line of ideas began with the works of Dadabhai Naoroji (1825—1917), Mahadeo Govind Ranade (1842-1901), Romesh Chunder Dutt (1848-1909) and Gopal Krishna Gokhale (1866-1915). There were also several social reformers, philosophers and radicals like Swami Vivekananda (1863-1902), Sri Aurobindo and Bankim Chandra Chatterjee (1838-94), who contributed significantly to economic thought.

Dadabhai Naoroji is often given the title ‘Grand Old Man of India' for his contributions to Indian economics during British rule. He was a Professor of Mathematics and Natural Philosophy at the Elphinstone Institution in Bombay in 1855. He published a book in 1876 entitled Poverty of India based on papers read before the Bombay Branch of the East India Association. He outlined reasons for the drain of India's wealth to Britain, which he argued was taking place at a time when the country was in dire need of industrialization and other reforms. Naoroji, a proponent of free trade, was one of the first to calculate the economic costs of the drain of resources from India. He estimated a £200-300 million loss of revenue to Britain that was not returned. This book brought his ideas to the public at large and become a stepping stone for the emergence of movements to end British rule.

According to R.P. Masani (1939, 192-3):

Dadabhai's paper was the most illuminating document ever published on that most contentious problem of Indian economics.

However, later Indian economists like Benoy Kumar Sarkar (1887-1949) disagreed with Naoroji's argument about the draining of resources from India to Britain. In fact, Sarkar ‘rejects the theory of exploitation and holds that just as India is drained of her raw materials or her foodstuffs through her connection with Great Britain, similarly India has been draining Great Britain of her capital, her organizing ability and her expert training for her own development' (Dutt, 1934, 179). Thus, Naoroji's calculation had ignored the intangible elements of the relationship, such as knowledge transfers. John Maynard Keynes was Sarkar's mentor, and Sarkar began studying at King's College, Cambridge, in 1911 and stayed in England until 1920: Keynes's own analysis of India was similar to Sarkar's on the drain issue. Keynes remarked about Sarkar that ‘He is a strange and charming creature' (Moggridge, 1992). Indeed, the relationship between Keynes and Sarkar was quite intimate. However, the broader debate moved on to what is usually known as the negative policies of the British government in India.

M.G. Ranade was among the first generation of thinkers who made important contributions to Indian political economics, as it was famously called. From 1893 until his death in 1901, he served as Judge of the High Court of Bombay. He published a book entitled Revenue Manual of the British Empire in India in 1877, which documented the provincial systems of land revenue sources. Ranade also published A Note on the Decentralization of Provincial Finance in 1894. His lectures, delivered during 1880-93, were published as Essays on Indian Economics in 1898. They provided a critical view of established economic theories, including the cultural aspects of Western and Indian traditions.

Ranade not only debated all the prevailing issues of the British Raj, but also gave consideration to the usefulness of classical economics in India, particularly methodology. He studied the economic systems of European countries and arrived at the conclusion that the inductive or historical method of analysis was the best. He railed against what he called ‘the Deductive School' of Adam Smith, David Ricardo and Thomas Malthus and instead argued, ‘The Method to be followed is... the Historical Method, which takes account of the past in its forecast of the future; and Relativity, and not Absoluteness, characterizes the conclusions of Economical Science'.

Thus he called for a specifically ‘Indian Political Economy' (Gallagher, 1988, 14). Ranade argued that ‘The same Teachers and Statesmen, who warn us against certain tendencies in our Political aspirations, forget this salutary caution when the question at issue is one of Indian Economics. They seem to hold that the Truths of Economic Science... are absolutely and demonstrably true, and must be accepted as guides of conduct for all time and place... Social, Juristic, Ethical, or Economical differences in the environments are not regarded as having any influence in modifying the practical application of these Truths'. Ranade thus believed that the principles of classical economics may not be applicable to countries other than Britain.

John Adams (1971) has argued that Ranade was an Institutionalist and took much from the German historical school, especially Sismondi, Hamilton, Carey, Ludovico, Muller and List. However, Ranade was arguing in the context of Britain's imported economic policies, and had imbibed India's long-standing value systems: Indian nationalism was emerging. Ranade was conscious of the cultural element involved with economic prosperity, although some feel that ‘Ranade's complete rejection of the Western classics was somewhat extreme' (Pani, 2011).

Romesh Chunder Dutt was a civil servant, political economist and writer. His publications dealt with British economic policies in India: England and India (1897), Famines in India (1900) and an Economic History of India. According to D.R. Gadgil, Dutt's work ‘contains, in essence, a preview of what came later to be called the economics of colonialism' (Dutt, 1968). One of Dutt's telling analyses was that ‘while British Political Economists professed the principles of free trade from the latter end of the eighteenth century, the British Nation declined to adopt them till they had crushed the Manufacturing Power of India, and reared their own Manufacturing Power... in India the Manufacturing Power of the people was stamped out by protection against her industries, and then free trade was forced on her so as to prevent a revival'. Thus, Dutt concluded that as a consequence of deindustrialization, there was increased dependence upon agriculture, which also came under severe pressure with British rule, chiefly because of high taxation (Parthasarathi, 2001). These conclusions were later corroborated by David Clingingsmith and Jeffrey Williamson (2005).

Gopal Krishna Gokhale pioneered a new radical economic thought in India. Initially he taught mathematics and for a time lectured on English, but then turned his attention to history and economics. He was also a Fellow at Bombay University. He was largely responsible for the drafting of new courses in history and economics. Gokhale was a strong advocate of the decentralization of power, particularly in matters related to finance. In 1896, he gave evidence before the Royal Commission under Lord Welby, which made his reputation as one of the foremost Indian economists. In a speech delivered at the Annual Financial Statement discussions in the Supreme Legislative Council of British Rule, Gokhale argued for a free banking system and against the government monopoly of currency and legal tender. He favoured the gold standard and specifically stated that ‘an automatic self-adjusting currency' would be a better way to manage the demand for currency, which would automatically adjust with trade in the market (Ambedkar, 1947, 240).