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How much does Britain owe India? An attempt at objectively calculating Britain’s debt to India

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There has been this raging debate on the quantum and nature of the debt Britain owed India (both financially as well as morally), but it is something very difficult to quantify.

How does one quantify the value of trade and income lost when Britain caused Indian exports of finished textile products from some 800,000 pieces a year in 1795 to zero in 1804? How does one quantify the value of cash crops exported from India at dirt cheap prices while forcing imports of finished goods? Mike Davis in his work, “Late Victorian Holocausts: El Niño Famines and the Making of the Third World” estimates that in Bengal alone in the time period 1875-1900, Indigo, Opium, Wheat, Rice (for exports) acreage increased by millions of acres while subsistence farming reduced by a commiserate amount. During this same period, annual grain exports rose from 3 million tonnes to 10 million tonnes (pp 299). It is another matter that Britain used China and its demand for Opium (grown in Bengal) to fund this increasing deficit the Raj faced. Mike Davis estimates that in 1879, Britain exported 87,000 chests of Opium to China from Bengal and used the revenues gained to fund the growing deficit of the Raj economy.

How does one quantify the value of the railways, which were built with Indian taxes, and cost 2 to 3 times more than what it costed on similar terrain in Australia, NZ or the US and was considered a great scam even by a few Britishers who raised it in the British Parliament.

We can however quantify the cost India incurred in paying for the bills of the Raj, fixed in gold (Britain moved to the gold standard in 1820), while India remained on the silver standard till about 1890-95 when it made the move towards the gold standard. In the interim, the Indian rupee depreciated substantially. By 1893, India was being billed Rs 270 million in the gold standard, while it was earning only Rs 266 million. This imbalance (billed in gold, revenue collected in silver) lead to something Dietmar Rothermund in his Economic history of India (pp 43) called “Parasitical paralysis” and lead to deflationary stagnation. Aside from what was billed (which can be justified as reasonable costs to run the Raj), the imbalance alone cost India GBP 105 million in the time period 1873-1893. Adjusted for inflation at 1893 prices, we arrive at a sum of $ 11 billion.

During WW1, India “gifted” a sum of GBP 90 million (Rs 380 crores, rough exchange value of 1 GBP = 4 INR) to Britain. Adjusting for inflation, it is the equivalent of $ 11,176,470,000 (11.1 BN USD) today. Now, this is over and above the true market price costs of the resources this does not include the cost of jute, cotton, food materials, wheat, rice which were exported to Britain (it sort of loosely was paid back, but will cover that further down the post). NC historians estimated a total debt of Rs 1,000 crores or GBP 250 Mn had been accrued post WW1 by Britain. To put into a modern perspective, that is equivalent to roughly $ 18 Bn in today’s money.

WW2 upped the ante substantially. By 1944, Britain owed India a sum of GBP 1.3 Bn, or roughly a 1/5th of its GNP1 (some historians peg it at about 1/8th). GBP 1.3 Bn in 1944 terms is equal to GBP 52 Billion today or $ 65 Bn.

Even neglecting the study conducted by Congress historians that arrived at the figure of Rs 1,000 crores, the three line items studied here give a total debt of $ 87 billion in 2016.

Britain handled these crisis in the Indian economy with a silver bullet- printing notes. Rothemund estimates that the amount of silver coins in circulation went up 600 million pieces in a 2 decade period from 1876-1893. During WW1 and WW2, the amount of paper currency in circulation also shot up dramatically, it was particularly egregious during WW2 when the Raj printed so many notes that it doubled the amount of currency in circulation from 1940 to 1942, fueling an inflation rate which hit 350% in this time period, causing the savings of the Indians to be totally wiped out.

At the end of the war (WW2), Britain agreed to pay a sum of Rs 1,500 crores or GBP 375 million and post Independence India settled. In essence of a total debt (that is objective and provable) $ 87 billion, Britain agreed to pay back $ 15 billion, writing off on its own accord the balance of $ 72 billion.

So if you want to put a quantified, provable figure, British debt to India comes at $ 72 billion.

How much of it has been repaid? At the end of the war (WW2), Britain agreed to pay a sum of ~ Rs 1,500 crores or GBP 375 Million and post Independence India settled. In essence of a total debt (that is objective and provable) $ 76 Bn, Britain agreed to pay back $ 15 Bn, writing off on its own accord the balance of $ 61 Bn. In addition to this and in the interests of fairness, it must be mentioned that Britain averaged around GBP 100 million in annual aid in the period 1977-1978, it was around GBP 50 million in the late 60’s annually, reaching GBP 250 million in 2012. In the same spirit of fairness, a lot of this was tied into grants, which meant money given to India went back to Britain like the case when India had to purchase 6 ships from Britain at inflated prices (India’s Foreign Relations 1947-2007 by Jayanta Kumar Ray).

In summation,

in 1947, Britain owed India 2.5 billion (after accounting for the settlement), India’s GDP in 1947 was $ 20 billion, so roughly 12.5% of India’s GDP was due to it from Britain. It gets even more interesting, Japan’s GDP in 1939 was around $ 7 Bn, and it was a world power, Britain owed India (even discounting the 1k crore figure) $ 2.5 Bn by 1943-44. That was just the sum Britain extracted from India to wage her own wars.

This was the objective debt accrued by Britain in a span of some 25 years. Now you could extrapolate it to a period of 200 odd years and the figure would be unfathomably large.

Other sources,

  1. Srinath Raghavan’s India’s War: World War II and the Making of Modern South Asia
  2. Britannia Overruled: British Policy and World Power in the Twentieth Century by David Reynolds

Disclaimer: The numbers were adjusted for inflation and converted to USD using online resources, so there could be an error, but the actual numbers reported by various sources (from that time period) are accurate.

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