Growth of Modern Industries in India

Modern industrial development in colonial India started in the mid-nineteenth century. The growth pattern was uneven and distorted. British policies prioritized imperial commercial needs over domestic economic integration. Early manufacturing developed around consumer goods, plantations, and raw material processing. Heavy capital goods industries remained absent for decades.

Phases of Industrial Development

Early Phase (1850s–1914)

The foundation of modern factory production rested on cotton textiles, jute processing, coal mining, and plantation sectors.

• Cotton Textile Industry: Cowasjee Nanabhoy Davar established the Bombay Spinning and Weaving Company in 1854. This marked the start of Indian enterprise in modern manufacturing. Indian capital, largely from Parsi, Gujarati, and Marwari merchants, financed cotton mills in Bombay, Ahmedabad, and Poona.
• Jute Textile Industry: British capital established the jute industry along the Hooghly River in Bengal. George Auldland set up the first power-driven jute mill at Rishra in 1855. European firms held a monopoly over jute manufacturing and raw export processing.
• Coal Mining: Mining expanded in Raniganj, Jharria, and Giridih. The growth of railway transport and steamships increased domestic coal demand. The Bengal Coal Company, formed in 1843, dominated coal extraction.
• Plantations: European investors established large tea plantations in Assam, the Dooars, and the Nilgiris. The Assam Company, founded in 1839, spearheaded commercial tea cultivation under state land concessions.

Inter-War Growth and Diversification (1914–1947)

World War I disrupted global shipping and trade routes. The British administration turned to domestic producers to meet war procurement needs.

• Iron and Steel: Jamsetji Tata founded the Tata Iron and Steel Company (TISCO) at Sakchi (Jamshedpur) in 1907. The plant produced pig iron in 1911 and steel ingots in 1912. TISCO supplied rail tracks and steel products during both World Wars.
• Import Substitution Sectors: Between 1920 and 1939, Indian entrepreneurs entered sugar, cement, paper, glass, and match manufacturing. The Associated Cement Companies (ACC) was established in 1936 to consolidate cement production.

State Policies and Regulatory Obstacles

Tariff Policies and Countervailing Taxes

The colonial government enforced free-trade policies to keep Indian markets open to British products. When a 5% import duty was placed on foreign cloth in 1894, pressure from Lancashire manufacturers led to a countervailing excise duty of 5% on Indian mill cloth. The government adjusted this excise tax to 3.5% in 1896. Public protests forced its suspension in 1925 and final abolition in 1926.

Discriminatory Protection Policy

Following the First Indian Fiscal Commission Report of 1921, the administration adopted “Discriminatory Protection” in 1923. Tariff protection helped specific domestic sectors like steel, cotton textiles, paper, and sugar. The Ottawa Agreement of 1932 introduced the Imperial Preference system, which granted lower import duties to British goods compared to products from other foreign nations.

Institutional Features and Investment Patterns

The Managing Agency System

British firms operated through managing agencies like Andrew Yule, Jardine Skinner, Bird & Co., and Martin Burn. A single agency managed multiple enterprises across tea, coal, jute, and shipping. This corporate structure controlled board decisions, charged high commission fees, and restricted Indian entrepreneurs from accessing credit and export markets.

Sectoral Ownership and Geographic Concentration

| Sector | Primary Capital Ownership | Major Geographic Hubs | Target Market | | | | | | | Cotton Textiles | Indian Capital | Bombay, Ahmedabad, Sholapur | Domestic & East Asia | | Jute Textiles | British Capital | Hooghly Belt (Bengal) | Global Packaging Exports | | Iron & Steel | Indian Capital | Jamshedpur, Burnpur | Domestic Railways & Infrastructure | | Coal Mining | European Capital | Raniganj, Jharria | Railways & Industrial Fuel | | Tea Plantations | British Capital | Assam, Dooars, Nilgiris | Britain & Imperial Exports |

Key Historical Facts

By 1913, India produced only 1.4% of global manufacturing output despite holding over 20% of the world’s population. At independence in 1947, modern factory manufacturing contributed under 10% to India’s national income and employed less than 3% of the total labor force. The Industrial Commission of 1916, chaired by Sir Thomas Holland, recommended state support for technical education and industrial research. The Indian Tariff Board was set up in 1923 to evaluate applications for tariff protection. By 1947, heavy machine tools, basic metallurgy, and capital goods sectors remained undeveloped, keeping the nation reliant on imported technology.